This time of year—the 2nd half of September—comes with mixed emotions. The newness of being back to school, back to sports, and eventually, depending on where you live, back to jackets starts to fade. The leaves begin their descent and it’s no longer appropriate to play “Summertime” by DJ Jazzy Jeff and the Fresh Prince. 

In the markets, we got all the major data we’ll get for a couple of weeks. The excitement of the first Fed cut in a few years is past, inflation is lower (though needs to stay that way longer for us to feel it), and the labor market is solid. Politics and breaking news from conflict gently aside, we are in business as usual. 

Which means there is also time for market minds to wander. In the absence of data, the market psychology has time to wonder. And that usually leads to more worry than optimism (perhaps it’s the animal side of our brains needing to be alert to danger vs safety).

This shows up in the data. Since 2002, the median S&P return has been negative in 11 out of the last 23 years, when looking at the last 5 days of September into the first two weeks of October. In addition, the average median annual return is -0.01%:

But it’s not just the market vibe. It’s also back to corporate activity. As we wind down Q2 earnings season and look ahead to Q3, generally companies go into or are already in their quiet periods. This means they won’t be sharing much in the way of financial updates and will not participate in buybacks of their own stock. Buybacks, which tend to be a decent source of US equity demand, are expected to decline by ~35% during this closed window, which began around September 13th (one stat showed it was running above $6.5B per day until the window began to close), according to a recent note from Goldman Sachs.

That being said, from a flow perspective, JPMorgan recently estimated that thanks to month-end rebalancing by mutual funds that own multiple types of assets and quarter-end rebalancing by institutions such as pension plans, there could be up to $125bn of equity buying in the next couple weeks. That could provide some offset to the seasonal aspect of right now.

For me, we are still on track for the expectations I laid out in my mid-year outlook. But I do expect a higher level of volatility, driven by the markets either looking for a recession, reacting to the election, or other yet unknown Q4 event.