If you’re a trader who only believes in seasonals then today is the day to buy stocks. There’s a dip and September is finishing on a weak note. Of course it looks bad right now but that’s how it always looks when sentiment is bad.
As a reminder, you only need to go back a year when the market initially bottomed on September 30. It later retested that in the second week of October, broke lower on an intraday basis and then posted a rip-your-face-off rally despite a higher CPI report. The ForexLive wrap from that day is worth reading.
It wasn’t exactly a sizzler into year end from there but stocks rose as much as 10% before some tax-loss selling to wrap up the quarter +5%. That tax-loss dip was a great opportunity as it was a one-way rally in early 2023.
All of it roughly followed the seasonal pattern, as has much of this year’s trading. I highlighted earlier this week how years with strong gains followed by weak Septembers have always had good finishes.
Here is a nice view of the seasonal pattern from here via EquityClock.com.
The seasonality in the Nasdaq is even stronger in Q4.
“Volatility can remain seasonally elevated through the first week and a
half of October, on average, but this is the timeframe that stocks tend
to bottom following their third quarter reset,” EquityClock notes, so there’s no rush to buy today.
It takes some gumption to buy stocks after weeks of selling but it’s certainly not worse than last year when the market was staring down the barrel of an upcoming 75 bps hike followed by a series of promised hikes in 2023. Of course, valuations are more challenging now but there’s always a wall of worry to climb in a bull market.
What needs to happen is some kind of bid in bonds or softening of economic data. The latter could be almost impossible to get with a government shutdown on Monday now looking close-to-certain.