After a hot start to the year, stocks have slipped in August. And market history shows investors might have trouble finding their footing again in September, too.
Historically, September has delivered a negative 0.73% monthly return for the S&P 500 (^GSPC), good for the worst monthly average dating back to 1945, per CFRA chief investment strategist Sam Stovall.
The S&P 500 has moved higher less than half the time in September since 1945, while the Nasdaq's (^IXIC) worst month on average since 1971 has been September, per Stovall's data.
"As a result of September's track record for benchmark beatings, we remind investors to prepare for the possibility of disappointing results for both the S&P 500 and Nasdaq in the month ahead," Stovall wrote in Monday in a note titled "September's slippery slope."
Through Monday's close, all three major indexes were sitting on losses for the month with the Dow Jones Industrial Average (^DJI) off about 3%, the S&P 500 down 3.4%, and the Nasdaq leading the losses, down 4.5%.
At the outset of August, Carson Group chief market strategist Ryan Detrick flagged that the better the year has gone into August, the worse stocks do in the final full month of summer.
Detrick said some weakness in September "makes sense," too.
"We're not just going to crash in September, not seeing that at all," Detrick told Yahoo Finance Live on Monday. "But maybe we're getting close to a low. ... Just some choppy season frustration is normal. Having said that, you could argue that little bit of a pullback, especially around some of the these AI names, is pretty healthy when you consider the incredible run-up, at least in the first half of the year."
Last week, stocks rose into Nvidia's (NVDA) highly anticipated earnings release as a blowout report from the artificial intelligence leader stoked exuberance about the investment corporates are making into AI opportunities. But that pop barely lasted an hour as more hawkish commentary from Fed officials weighed on stocks.
On Friday, Federal Reserve Chair Jerome Powell said the central bank is "prepared to raise rates further," in a speech at Jackson Hole. Bets on another interest rate hike from the Fed increased following the comments.
Markets are now pricing in a nearly 20% chance the Fed raises rates at its September meeting and a 51% chance there's a hike by the end of its November meeting, per the CME's FedWatch tool. Prior to Jackson Hole, markets had been pricing in just a 38% chance there'd be a hike by the end of the November meeting.
"With the uncertainty leading up to the Sept. 20 FOMC meeting, that could offer enough concern and uncertainty that would allow the markets to tread water," Stovall told Yahoo Finance.
Still, a pullback in September doesn't necessarily mean stocks stumble to finish out 2023, either.
Just as Stovall highlighted the September Fed meeting as a pivot point for markets, Detrick believes the Fed is done hiking and the economy will remain resilient, both keys to the bull case for the rest of the year.
"Historically, fourth quarters are strong," Detrick said.
"What's going to drive us? We think it's the economy. We don't see a recession ... Once we get through the seasonal period, [expect a] pretty strong fourth quarter, probably, [and] new highs on stocks before all is said and done."
Josh Schafer is a reporter for Yahoo Finance.
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