September is traditionally the worst month of the year for equities and this year is no different. Recent changes, including a recent federal appeals court decision on President Donald Trump’s tariffs, contribute to a wave of uncertainty that has left investors in the lurch. The S&P 500 actually had a four-month winning streak in the months leading up to September. Now, it faces a pattern in history that poses a major existential threat to its success.
Over the past five years, the S&P 500 has seen an average decline of 4.2% during September. At the same time, index over the last 10 years has decreased more than 2% on average. Even recent years have followed this abysmal track record, causing alarm even to analysts and investors.
That in itself is extraordinary, since in August, the Dow Jones Industrial Average was up more than 3%. In contrast, the tech-heavy Nasdaq ended the month up 1.6%. As we head into the first full trading week of September, S&P 500 futures are up about 0.11% and Nasdaq 100 futures have gained 0.14%. This modest increase follows a close to 2% rise in the S&P 500 heading into September.
The unpredictability of September’s fate, given the historical trends, has been deepened by the impact from a recent legal decision. On Friday, a federal appeals court struck down most of President Trump’s global tariffs as illegal. Trump has personally attacked the ruling and its author in his usual manner, calling the finding “Very Partisan.” He is seeking to appeal the decision to the U.S. Supreme Court.
“The core Congressional power to impose taxes such as tariffs is vested exclusively in the legislative branch by the Constitution,” stated the U.S. Court of Appeals for the Federal Circuit, emphasizing the constitutional implications of tariff imposition.
As ITEP mentioned in our recent brief on the subject, analysts believe a Supreme Court ruling against using the International Emergency Economic Powers Act (IEEPA) to levy reciprocal tariffs would reduce risks of broad-based tariff escalation. Fifth, this ruling may actually produce greater short-term uncertainty because many existing trade agreements would have to be renegotiated. As Aniket Shah noted, a Supreme Court decision against the use of IEEPA on reciprocal tariffs would reduce the danger of a slippery slope of escalating tariffs. This would be a positive development for the market. Despite this long-term optimism, short-term uncertainty could increase as some trade agreements will need to be renegotiated.
As September gets underway, many eyes on the markets are turning toward the August jobs report, which will be out this coming Friday. This report will likely be the key one in determining how the Federal Reserve should position itself ahead of its interest rate decision in mid-September. A Senate Banking Committee nomination hearing for Stephen Miran, a Trump nominee, is on September 4th.