September has historically been the worst month for the US stock market. Given that markets have been soaring for months, are equities at a heightened risk of correcting? “There hasn’t been a truly bad day since June”, remarked ForexLive’s Adam Button last Wednesday, in what he said has been a “magical, non-stop rally”.
Ironically, stocks plunged on Thursday, and one could certainly argue that further bloodshed is merited. Stocks have gained in each of the last five months. The S&P 500 soared 7 per cent in August alone, its best August since 1984.
However, this doesn't actually indicate that a proper selloff is coming. LPL Research's Ryan Detrick looked at the last 15 occasions where stocks gained at least 7 per cent in one month; a month later, stocks were higher on all but two occasions, averaging gains of 3.2 per cent.
Looking further ahead, Detrick found 26 other five-month winning streaks; a year later, the S&P 500 was higher in 25 of those 26 cases.
This rally has gone further than anyone thought possible in March, but history suggests any pullback will be fleeting, for now anyway. With stocks, strength begets strength.
