September proved to be another strong month for equities, with the anticipated seasonal weakness once again failing to emerge. As we head into the final quarter of the year, market momentum remains firmly intact, providing a constructive backdrop for investors. Below are the September returns for the popular benchmarks that investors track (Data provided by Y-Charts & Commonwealth Financial Network):

S&P 500 Index: +3.5%
Dow Jones Industrial Average: +1.9%
Nasdaq Composite Index: +5.6%
Russell 2000 Index: +2.7%
S&P Target Risk Moderate: +2.0%

As we noted in last month’s update, the Federal Reserve followed through with a rate cut of 0.25% at its most recent meeting in September. Chair Jerome Powell also indicated that the Fed may make two additional cuts before year-end.

Stepping back, it’s worth noting that the S&P 500 has finished in the red in each of the past two Octobers. However, history shows that you’d have to go back to the late 1970s to find a stretch where October posted losses for three consecutive years. While this suggests the odds of another negative October are relatively low, recent months have reminded us that seasonal patterns don’t always play out as expected.

October tends to be a decent month for stocks, especially during post-election years. The chart below shows the average performance of some major market indices during the month of October. The dashed lines highlight average performance during post-election years.

The government’s fiscal year ended on September 30th, yet Congress has not passed a full-year budget or even a short-term continuing resolution. While it’s widely agreed that approving a spending bill would be in the nation’s best interest, the key question for investors is: how do government shutdowns typically affect the stock market?

Below is a graphic from Ryan Detrick at Carson Investment Research illustrating how the S&P 500 has performed both during government shutdowns and in the year following their resolution. The data makes it clear—historically, shutdowns have had only a limited impact on the market, both in the near term and over the longer run.

Our outlook for the remainder of the year remains unchanged. The third-quarter earnings season is just ahead, kicking off with reports from the major banks during the middle of October.

As always, don’t hesitate to contact our team with any questions.