Raphael Stevens

September is historically weak for U.S. stocks.
However, long-term investors likely shouldn’t sell out of the market.
The seasonal weakness was tied to banking and farming practices before the early 1900s. Nowadays, it’s likely entrenched in investor psychology, experts said.

Traders on the New York Stock Exchange floor on Sept. 9, 2024.
Spencer Platt | Getty Images News | Getty Images

September historically hasn’t been kind to stock investors.
Since 1926, U.S. large-cap stocks have lost an average 0.9% in September, according to data from Morningstar Direct.  

September is the only month during that nearly century-long period in which investors experienced an average loss, according to Morningstar. They saw a profit in all other months.

For example, February saw a positive 0.4% return, on average. While that performance is the second-lowest among the 12 months, is still eclipses September’s by 1.3 percentage points. July reigns supreme with an average return of almost 2%.
The monthly weakness also holds true when looking just at more recent periods.
For example, the S&P 500 stock index has lost an average 1.7% in September since 2000 — the worst monthly performance by more than a percentage point, according to FactSet.
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Historically, the last two weeks of September are generally the weakest part of the month, said Abby Yoder, U.S. equity strategist at J.P Morgan Private Bank.
“Starting next week is when it would [tend to get] get a little bit more negative, in terms of seasonality,” Yoder said.

Trying to time the market is a losing bet

Alistair Berg | Digitalvision | Getty Images

Investors holding their money in stocks for the long-term shouldn’t bail, Yoder said.
Trying to time the market is almost always a losing bet, according to financial experts. That’s because it’s impossible to know when good and bad days will occur.
For example, the 10 best trading days by percentage gain for the S&P 500 over the past three decades all occurred during recessions, according to a Wells Fargo analysis published earlier this year.

Plus, average large-cap U.S. stock returns were positive in September for half the years since 1926, according to Morningstar. Put another way: They were only negative half of the time.
As an illustration, investors who sold out of the market in September 2010 would have foregone a 9% return that month — the best monthly performer that year, according to Morningstar.
“It’s all just random,” said Edward McQuarrie, a professor emeritus at Santa Clara University who studies historical investment returns. “Stocks are volatile.”

Don’t put faith in market maxims

Similarly, investors shouldn’t necessarily accept market maxims as truisms, experts said.
For example, the popular saying “sell in May and go away” would have investors sell out of stocks in May and buy back in November. The thinking: November to April is the best rolling six-month period for stocks.

It’s all just random.

Edward McQuarrie
professor emeritus at Santa Clara University

“History shows this trading theory has flaws,” wrote Fidelity Investments in April. “More often than not, stocks tend to record gains throughout the year, on average. Thus, selling in May generally doesn’t make a lot of sense.”
Since 2000, the S&P 500 saw gains of 1.1% from May to October, on average, over the six-month period, according to FactSet. The stock index gained 4.8% from November to April.

Historical reason for September weakness

There is a historical reason why stocks often fared poorly in September prior to the early 1900s, McQuarrie said.
It ties into 19th century agriculture, banking practices and the scarcity of money, he said.
At the time, New York City had achieved dominance as a powerful banking hub, especially after the Civil War. Deposits flowed to New York from the rest of the country during the year as farmers planted their crops and farmer purchases accumulated in local banks, which couldn’t put the funds to good use locally, McQuarrie said.

New York banks would lend funds to stock speculators to earn a return on those deposits. In the early fall, country banks drew down balances in New York to pay farmers for their crops. Speculators had to sell their stock as New York banks redeemed the loans, leading stock prices to fall, McQuarrie said.
“The banking system was very different,” he said. “It was systematic, almost annual and money always got tight in September.”
The cycle ended in the early 20th century with the creation of the Federal Reserve, the U.S. central bank, McQuarrie said.

‘It gets in the psyche’

Golero | E+ | Getty Images

September’s losing streak is somewhat more baffling in modern times, experts said.
Investor psychology is perhaps the most significant factor, they said.
“I think there’s an element of these narratives feeding on themselves,” said Yoder of J.P Morgan. “It’s the same concept as a recession narrative begetting a recession. It gets in the psyche.”
There are likely other contributing elements, she said.
For example, mutual funds generally sell stock to lock in profits and losses for tax purposes — so-called “tax loss harvesting” — near the end of the fiscal year, typically around Oct. 31. Funds often start giving capital-gains tax estimates to investors in October.
Mutual funds seem to be “pulling forward” those tax-oriented stock sales into September more often, Yoder said.

I think there’s an element of these narratives feeding on themselves.

Abby Yoder
U.S. equity strategist at J.P Morgan Private Bank

Investor uncertainty around the outcome of the U.S. presidential election in November and next week’s Federal Reserve policy meeting, during which officials are expected to cut interest rates for the first time since the Covid-19 pandemic began, may exacerbate weakness this September, Yoder said.
“Markets don’t like uncertainty,” she said.
But ultimately, “I don’t think anybody has a good explanation for why the pattern continues, other than the psychological one,” McQuarrie said. More

Hedge fund billionaire John Paulson, who made a name for himself by betting against the housing market during the financial crisis and who is today a prominent supporter of former President Donald Trump, said there could be a collapse in the financial markets and a recession if Vice President Kamala Harris’ proposed tax plans become a reality.
“They want to raise the corporate tax rate from 21 to 28%, they want to raise the capital gains tax from 20% to 39% and then they want to add a tax on unrealized capital gains of 25%,” Paulson said in an interview on CNBC’s “Money Movers” on Friday with Sara Eisen. “I think if they implement those policies, we’ll see a crash in the markets, no question about it.”

The Democratic presidential nominee proposed a 28% tax on long-term capital gains for any household with an annual income of $1 million or more, lower than the 39.6% rate that President Joe Biden laid out in his 2025 fiscal-year budget.
Meanwhile, Harris previously endorsed the tax increases proposed by Biden that include a 25% tax on unrealized gains for households worth at least $100 million, known as the billionaire minimum tax. However, people close to the Harris campaign, including investor Mark Cuban, have said she has no interest in taxing unrealized gains and there are doubts if any such plan could make it through Congress.
Paulson shot to fame and made a fortune after taking a massive bet against mortgage bonds using credit default swaps before the financial crisis. The founder and president of family office Paulson & Co. has been a major donor to Trump’s 2024 presidential campaign, reportedly advising him on the idea of building a U.S. sovereign wealth fund.
The 68-year-old investor believes the economy could quickly tip into a recession as well if the specific plan to tax unrealized gains were to be implemented.
“If the Biden-Harris team does come in, and they were to implement what’s on their platform, which is a tax on unrealized gain, that’s going to cause massive selling of homes, of stocks, of companies, of art and that could … put us immediately into a recession, so hopefully that if they are elected, they won’t pursue that,” he said.

Some Wall Street economists and strategists do believe raising the corporate tax rate from the 21% where Trump lowered them could hit S&P 500 company earnings and weigh on share prices, but none from the major firms have said it would cause a pullback to the magnitude that Paulson is describing.
There is also some concern that Trump’s economic plans would not be as market-friendly as Paulson believes with proposed tariffs reigniting some inflation and more tax cuts expanding the budget deficit.
Paulson, who Trump has reportedly talked about as Treasury secretary in a second administration, said in the CNBC interview he does not believe that tariffs would be inflationary if targeted correctly. The investor also said the lower taxes would spark economic gains that help raise revenues and close the deficit gap.

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Under current law, individuals can transfer up to $13.61 million (and couples can send up to $27.22 million) to family members or beneficiaries without owing estate or gift taxes.
But that benefit is set to expire at the end of 2025.
That means ultra-wealthy investors are considering their inheritances and the trillions of dollars set to pass from older to younger generations in the coming years.

Dimensions | E+ | Getty Images

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.
The tightening presidential race has touched off a wave of tax planning by ultra-wealthy investors, especially given fears of a higher estate tax, according to advisors and tax attorneys.

The scheduled “sunset” of a generous provision in the estate tax next year has taken on new urgency as the odds of a divided government or Democratic president have increased, tax experts say. Under current law, individuals can transfer up to $13.61 million (and couples can send up to $27.22 million) to family members or beneficiaries without owing estate or gift taxes.
The benefit is scheduled to expire at the end of 2025 along with the other individual provisions of the 2017 Tax Cuts and Jobs Act. If it expires, the estate and gift tax exemption will fall by about half. Individuals will only be able to gift about $6 million to $7 million, and that rises to $12 million to $14 million for couples. Any assets transferred above those amounts will be subject to the 40% transfer tax.

Wealth advisors and tax attorneys said expectations of a Republican sweep in the first half of the year led many wealthy Americans to take a wait-and-see approach, since former President Donald Trump wants to extend the 2017 tax cuts for individuals.
Vice President Kamala Harris has advocated higher taxes for those those making more than $400,000.
With Harris and Trump essentially tied in the polls, the odds have increased that the estate tax benefits will expire — either through gridlock or tax hikes.

“There is a little increased urgency now,” said Pam Lucina, chief fiduciary officer for Northern Trust and head of its trust and advisory practice. “Some people have been holding off until now.”
The sunset of the exemption, and the response by the wealthy, has broad ripple effects on inheritances and the trillions of dollars set to pass from older to younger generations in the coming years. More than $84 trillion is expected to be transferred to younger generations in the coming decades, and the estate tax “cliff” is set to accelerate many of those gifts this year and next.
The biggest question facing wealthy families is how much to give, and when, in advance of any estate tax change. If they do nothing, and the estate exemption drops, they risk owing taxes on estates over $14 million if they die. On the other hand, if they give away the maximum now, and the estate tax provisions are extended, they may wind up with “givers’ remorse” — which comes when donors gave away money unnecessarily due to fears of tax changes that never happened.
“With givers’ remorse, we want to make sure clients look at the different scenarios,” Lucina said. “Will they need a lifestyle change? If it’s an irrevocable gift, can they afford it?”
Advisors say clients should make sure their gift decisions are driven as much by family dynamics and personalities as they are by taxes. While giving the maximum of $27.22 million may make sense today from a tax perspective, it may not always make sense from a family perspective.
“The first thing we do is separate out those individuals who were going to make the gift anyway from those who have never done it and are only motivated to do it now because of the sunset,” said Mark Parthemer, chief wealth strategist and regional director of Florida for Glenmede. “While it may be a once-in-a-lifetime opportunity as it relates to the exemption, it’s not the only thing. We want individuals to have peace of mind regardless of how it plays out.”
Parthemer said today’s wealthy parents and grandparents need to make sure they are psychologically comfortable making large gifts.
“They’re asking ‘What if I live so long I outlive my money,'” Parthemer said. “We can do the math and figure out what makes sense. But there is also a psychological component to that. As people age, a lot of us become more concerned about our financial independence, regardless of whether the math tells us we’re independent or not.”

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Some families may also fear their kids aren’t ready for such large amounts. Wealthy families who planned to make big gifts years from now are feeling pressure from the tax change to go ahead with it now.
“Especially with families with younger children, a primary concern is having donors’ remorse,” said Ann Bjerke, head of the advanced planning group at UBS.
Advisors say families can structure their gifts to be flexible — gifting to a spouse first, for instance, before it goes to the kids. Or setting up trusts that trickle out the money over time and reduce the changes of “sudden wealth syndrome” for kids.
For families that plan to take advantage of the estate tax window, however, the time is now. It can take months to draft and file transfers. During a similar tax cliff in 2010, so many families rushed to process gifts and set up trusts that attorneys became overwhelmed and many clients were left stranded. Advisors say today’s gifters face the same risk if they wait until after the election.
“We’re already seeing some attorneys start to turn away new clients,” Lucina said.
Another risk with rushing is trouble with the IRS. Parthemer said the IRS recently unwound a strategy used by one couple, where the husband used his exemption to gift his kids money and gave his wife funds to regift using her own exemption.
“Both gifts were attributed to the wealthy spouse, triggering a gift tax,” he said. “You need to have time to measure twice and cut once, as they say.”
While advisors and tax attorneys said their wealthy clients are also calling them about other tax proposals in the campaign — from higher capital gains and corporate taxes to taxing unrealized gains — the estate tax sunset is far and away the most pressing and likely change.
“In the past month, inquiries have accelerated over the [estate exemption],” Bjerke said. “A lot of people were sitting on the sidelines waiting to implement their wealth-planning strategies. Now, more people are executing.”

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Fitch expects that the Fed will enact cumulative 250 basis points of cuts in 10 moves, spread over 25 months
In Asia, the rating agency expects more cuts in China, while forcasting that the Bank of Japan has more room to raise rates.

Chris Wattie | Reuters

The U.S. Federal Reserve’s easing cycle will be “mild” by historical standards when it starts cutting rates at its September policy meeting, ratings agency Fitch said in a note.
In its global economic outlook report for September, Fitch forecast 25-basis-point cut each at the central bank’s September and December meeting, before it slashes rates by 125 basis points in 2025 and 75 basis points in 2026.

This will add up to a total 250 basis points of cuts in 10 moves across 25 months, Fitch noted, adding that the median cut from peak rates to bottom in previous Fed easing cycles going up to the mid-1950s was 470 basis points, with a median duration of 8 months.
“One reason we expect Fed easing to proceed at a relatively gentle pace is that there is still work to do on inflation,” the report said.
This is because CPI inflation is still above the Fed’s stated inflation target of 2%.
Fitch also pointed out that the recent decline in the core inflation — which excludes prices of food and energy — rate mostly reflected the drop in automobile prices, which may not last.
U.S. inflation in August declined to its lowest level since February 2021, according to a Labor Department report Wednesday.

The consumer price index rose 2.5% year on year in August, coming in lower than the 2.6% expected by Dow Jones and hitting its lowest rate of increase in 3½ years. On a month-on-month basis, inflation rose 0.2% from July.
Core CPI, which excludes volatile food and energy prices, rose 0.3% for the month, slightly higher than the 0.2% estimate. The 12-month core inflation rate held at 3.2%, in line with the forecast.
Fitch also noted that “The inflation challenges faced by the Fed over the past three and a half years are also likely to engender caution among FOMC members. It took far longer than anticipated to tame inflation and gaps have been revealed in central banks’ understanding of what drives inflation.”

Dovish China, hawkish Japan

In Asia, Fitch expects that rate cuts will continue in China, pointing out that the People’s Bank of China’s rate cut in July took market participants by surprise. The PBOC cut the 1-year MLF rate to 2.3% from 2.5% in July.
“[Expected] Fed rate cuts and the recent weakening of the US dollar has opened up some room for the PBOC to cut rates further,” the report said, adding that that deflationary pressures were becoming entrenched in China.
Fitch pointed out that “Producer prices, export prices and house prices are all falling and bond yields have been declining. Core CPI inflation has fallen to just 0.3% and we have lowered our CPI forecasts.”
It now expects China’s inflation rate to bet at 0.5% in 2024, down from 0.8% in its June outlook report.
The ratings agency forecast an additional 10 basis points of cuts in 2024, and another 20 basis points of cuts in 2025 for China.
On the other hand, Fitch noted that “The [Bank of Japan] is bucking the global trend of policy easing and hiked rates more aggressively than we had anticipated in July. This reflects its growing conviction that reflation is now firmly entrenched.”
With core inflation above the BOJ’s target for 23 straight months and companies prepared to grant “ongoing” and “sizable” wages, Fitch said that the situation was quite different from the “lost decade” in the 1990s when wages failed to grow amid persistent deflation.
This plays into the BOJ’s goal of a “virtuous wage-price cycle” — which boosts the BOJ’s confidence that it can continue to raise rates towards neutral settings.
Fitch expects the BOJ’s benchmark policy rate to reach 0.5% by the end of 2024 and 0.75% in 2025, adding “we expect the policy rate to reach 1% by end-2026, above consensus. A more hawkish BOJ could continue to have global ramifications.” More