Markets in Motion: September seasonality puts S&P 500 and small caps in focus

Historical seasonality suggests the S&P 500 could encounter increased volatility during the second half of September before conditions historically improve later in the year.

In U.S. midterm election years, September has historically been a weaker month for the S&P 500, although the period from September through year-end has averaged a gain.

Gold has accelerated following its mid-year pullback, with the direction of the U.S. dollar potentially playing an important role in determining what happens next.

A long-term indicator for the Russell 2000 has recently turned negative, giving investors another risk signal to watch across U.S. small caps.

Broader volatility indicators remain mixed, suggesting September weakness could potentially create opportunities rather than signalling a major deterioration in markets.

September has a reputation for giving investors something to worry about, and this year the seasonal signals are once again coming into focus.

In the latest episode of Markets in Motion , StoneCastle Investment Management portfolio manager Bruce Campbell examines what historical September performance could mean for the S&P 500, alongside changing signals in gold, U.S. small caps and market volatility.

Seasonality data from EquityClock shows that the S&P 500 has historically performed relatively well during the first part of September before weakening during the latter half of the month.

Campbell cautions against treating that pattern as a forecast. He compares seasonality with climate: it tells investors what conditions have historically looked like, but the actual "weather" can vary considerably from one year to another.

This year also falls within a U.S. midterm election cycle, adding another historical pattern for investors to consider.

Campbell highlights Jones Trading data showing that, on average, the S&P 500 has declined 2% during September in midterm election years. Historically, however, October has been positive, as has the period from November through year-end.

That has also left the broader September-to-year-end period positive on average, suggesting any seasonal weakness could potentially create opportunities rather than necessarily changing the longer-term market trend.

Gold is another market closely following its historical seasonal tendencies.