The Quiet Squeeze in the Money Markets

Each year, the news plays up the increased volatility and weak returns that allegedly occur in September. But is it true?

Is a Stock Market Correction Due in September? It's September, which means the news articles covering the "September Effect" should be cropping up more frequently on financial news sites and in reader inboxes. Prepare your mental defenses. The main takeaway of the "September Effect" articles is almost always the same – investors should prepare for heightened volatility and weak returns, and perhaps even hold off on investment plans until the Santa Claus rally takes hold in December. But it's all noise. Stocks do not follow a calendar, and they never have. Even still, "September Effect" proponents point out that September is the only calendar month with a negative return over the last 100 years (when looking at the Dow Jones Industrial Average). Many also suggest there are definitive causes for the declines, like traders returning from summer vacation with 'sell lists,' mutual funds selling ahead of the end of the fiscal year in September, and individual investors selling ahead of September, which makes the "September Effect" a self-fulfilling prophecy. Again, all noise.1 How Can You Prepare for a Potential Market Correction? If you are wondering what you should do in anticipation of a potential market correction, we encourage you to continue to protect your investments. Don't make any drastic moves, but remember to stay calm and base your decisions on fundamentals and research! In our just-released Stock Market Outlook report, we provide insight on how to focus on the facts and hard data. This report contains some of our key forecasts to consider such as: Zacks Rank S&P 500 Sector Picks Zacks view on equity markets What produces 2021 optimism? Zacks forecasts for the remainder of the year Zacks ranks industry tables Sell-side and buy-side consensus And much more If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! IT'S FREE. Download the Just-Released September 2021 Stock Market Outlook2 What proponents often leave out of the discussion is the fact that terrible Septembers during the Great Depression, the 1974 bear market, the 2001-2002 bear market, and the 2008 Global Financial Crisis are all weighing down the average. What's more, when you look at the S&P 500 over the last 25 years, the September Effect loses just about all of its luster. The average monthly return for the S&P 500 is just -0.4%, and the median monthly return for the index is positive. In my view, those just aren't statistics that support overhauling your asset allocation. In the current year, September skeptics are pointing to the ongoing pandemic, inflationary pressures, and the situation in Afghanistan as reasons to avoid stocks. To be fair, I'm not saying September will surely be positive. I'm just making an argument against the certainty that it will be negative, and highlighting why you should not try to time the market based off market noise like the "September Effect." To me, the "September Effect" is not a reliable indicator because past returns do not predict future returns, and believing otherwise often drives investors to engage in short-term market timing – which I strongly oppose. I have also seen folks argue recently that the stock market has not corrected in several months, and must therefore be due for a pullback this fall. I do not disagree that the stock market is due for a correction in the realm of -10% to -20%, but I do disagree with anyone who seems to know when it will occur. Corrections are by definition unpredictable in onset, duration, and size. If anyone could predict them, that person would not only be wildly famous, he/she would also likely manage everyone's money. But such a person does not exist. The next stock market correction may start tomorrow, one week from now, one month, or one year from now. No one knows. What I do know, however, is that stocks are priced based on forward-looking fundamentals and earnings/earnings expectations, all of which look good to me in the current environment. Total S&P 500 earnings in Q3 2021 are expected to be up +26.2% on +13.3% higher revenues, and the chart below shows how Q3 estimates have been pushing higher since the start of the year. It may be September, but corporations are feeling confident about the outlook in the next few months. And that's what I think investors should care about most.3 Bottom Line for Investors The "September Effect" endures as a popular stock market pattern, but not because it is a particularly good or powerful indicator. It is neither. It endures because investors often look for patterns to help explain unknowns, and September's reputation as the only negative month is seemingly enough to give investors an edge. But past returns do not drive or predict future returns, and what has happened historically in September bears no weight on what may happen this September – or any future September. No month or time of year is better for stock market investors than any other. What really matters, in my view, is how earnings and earnings expectations may evolve from here. And from where I sit, it's so far, so good. To be prepared for any market outcome, we recommend staying focused on key economic indicators. Our just-released September Stock Market Outlook report, will give you insight into all of it! This report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you'll discover Zacks' view on: Zacks Rank S&P 500 Sector Picks Zacks view on equity markets What produces 2021 optimism? Zacks forecasts for the remainder of the year Zacks ranks industry tables Sell-side and buy-side consensus And much more If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! FREE Download – Zacks' September 2021 Stock Market Outlook Report4 About Zacks Investment Management Zacks Investment Management was born out of one of the country's largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we've developed to design customized investment portfolios based on each client's individual needs. The end result is investment management that is research driven, results oriented and client focused. Ready to get serious about pursuing your financial goals? Call 1-800-701-9830 today, or schedule a time with a Zacks Wealth Advisor. © Zacks Investment Management  |  Privacy Policy 1 Investopedia. April 23, 2021. 2 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion. 3 Zacks.com. August 13, 2021. 4 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion. Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals. 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