Why Stocks Are Poised for Gains This September

September is typically the worst month for U.S. stocks, but 2024 is breaking that pattern.

Historically, September has earned a bad reputation on Wall Street, with the S&P 500 averaging a 1.2% loss, making it the weakest month of the year, according to Dow Jones Market Data. However, this year’s market performance tells a different story. For the first time in five years, U.S. stocks are set to end September with gains.

In recent years, September has been particularly brutal. The S&P 500 fell nearly 5% in 2023 and over 9% in 2022, continuing a trend of steep losses. But 2024 is seeing a reversal. As of now, the S&P 500 has gained 1%, the Dow Jones is up 1.6%, and the Nasdaq Composite has risen 1.5%, positioning these indexes for their best September in years.

Much of this optimism can be attributed to the Federal Reserve’s recent 50-basis-point interest-rate cut, which has boosted investor confidence. According to Thomas Martin of GLOBALT Investments, the Fed’s easing cycle is a key factor in the market’s recovery.

Although stocks have generally performed well in 2024, they experienced volatility in August and early September, as investors feared a faster-than-expected economic slowdown. Despite these concerns, the Fed’s intervention helped stabilize the market.

Looking forward, the market could still face some short-term swings, especially with the upcoming U.S. presidential election, which may cause temporary uncertainty. Investors are also closely monitoring upcoming economic data, such as GDP growth and inflation figures, to assess whether the Fed’s actions will continue to support the market.

The so-called “September Effect” has puzzled analysts for years. Some attribute the month’s usual losses to increased trading activity after the summer or portfolio rebalancing by funds. However, this year is defying expectations, giving investors hope as they approach the end of 2024.