Wall Street's Scariest Seasonal Pattern Returns in September. Should AI Stock Investors Be Worried?
The real worry should be that extreme AI-driven valuations, concentration, leverage, and circular financing leave the market vulnerable to a sharp correction if growth or profits disappoint.
Overview
September gets blamed for being the market's worst month, but the calendar isn't what has me worried this year. What concerns me is what happens when a market already heavily dependent on artificial intelligence spending, leverage, and a handful of giant companies finally has to prove those expectations are justified.
September is the only month with a negative long-run average return. Since 1928, the S&P 500 (SNPINDEX: ^GSPC) has declined an average of 1.2% in September, worse than every other month. Since 1950, it has finished positive just 44% of the time, the only month below a coin flip. Nine of the 40 worst monthly losses in market history landed in September, more than any other month.
Details
The recent record is uglier -- in 4 of the past 5 Septembers, the market fell by an average of 4.2%, more than triple the long-term average decline. When September finishes in the red, the average loss is 3.8%. Here is the honest caveat: Remove a handful of outlier years, and September performs positively slightly more than half the time. Seasonality is not destiny, and one useful filter matters: When the index sits above its 200-day moving average entering September, the average return flips to positive 1.3% with 60% of occurrences higher.
Source
Originally published at www.fool.com.