September 2023 -Seasonal Weakness

Seasonal weakness -have you heard this term over the last couple of months from the financial news media? Did you know that historically, two of the worst performing months for the S&P 500, the Dow 30 and the Nasdaq Indices are August and September? Yes, we reviewed financial markets data from 1945 through last year and most market corrections (a decline in equity markets of up to 10%) generally start in the late summer months culminating in the undisputed worst month for stocks, being September.

This trend, known as seasonal weakness, has proven to be the case again this year with the Dow, S&P 500 and Nasdaq Indices declining -2.4, -1.8 and -2.2% in the month of August. Although September has started off on shaky ground, we still have very respectable gains year to date on all three indices of 4.33, 16.39 and 31.87%. Here’s the good news, October, November and December are historically the best months for equity returns and we believe the remainder of the year should be no different.

I mentioned in our July (2023) note that we did expect the Federal Reserve to sneak in one more .25% interest rate increase this year on the 20th of this month. We are now revising this rate hike to come on November 1st instead -which we believe will be its last given the concrete evidence of cooling inflation (in both Core and CPI month over month and year over year), the lag effect of previous rate hikes still have yet to be felt by the economy, higher mortgage rates are starting to slow the upward price appreciation on homes and we are now seeing evidence that the U.S consumer is starting to pull back their spending.

Ironically, all of the data above could be viewed as a near term headwind for equity markets, but this is what the Federal Reserve wants to see in the data. All of these, in combination reduce inflation and this process of hiking short term rates, reducing inflation back to its 2% target and gradually slowing the economy (without tipping it into recession) is known as a soft landing. We believe we are on the cusp of a soft landing and that’s good news for stocks and for the rest of the year.

A fringe benefit to these rates hikes has been higher bond yields, higher savings, CD and money market rates all of which help us provide higher and more reliable portfolio income for our retiree clients seeking current income, reliability of that income by locking in those rates by purchasing individual corporate bonds, CDs, Treasuries and Agency bonds with longer maturity dates.

Ultimately, at some point in 2024 we believe the Federal Reserve will need to cut rates in the event the economy starts to slow too much and given the inverse price correlation bonds have with interest rates we could see our longer-term bond holdings actually appreciate in price at the same time were receiving above market rates of income. Of course, this would be the ideal scenario, but we know markets (and life) tend to throw us curve balls along the way to keep us on our toes.

Just as higher interest rates and the Fed’s aggressive rate hiking campaign were a headwind to stocks in 2022, lower interest rates are generally seen as a tailwind for stocks as the cost of capital to companies reduces, profit margins grow which means earnings per share grow -which is ultimately the driver of higher stock prices. The market has been sniffing this out for months and sees a path to this promise land which, at the end of the day comes back to holding a diversified portfolio of both bonds and stocks for one to benefit the most.

Tactically, in regard to portfolio management, we continue to look for opportunities to purchase high quality stocks on sale (which is few and far between given the current elevated valuation ratios we use to identify a bargain) and continue to lengthen maturity dates on our fixed income holdings as they mature.

One thing we know for certain is to expect the unexpected in markets and we stand ready to make adjustments as the macro environment unfolds.

As always, we wish you and your family a great Friday evening, and a wonderful weekend!


Please reach out to us with any questions or comments you may have regarding your specific situation.


Jaran C. Day, Chief Investment Officer


Griffin Dalrymple, CFP®, Chief Strategy Officer