The S&P 500 ended September with a slight gain despite 75% of its constituent stocks closing lower, according to Barchart data. September remains the only month with a negative average return for the SPDR S&P 500 ETF (SPY) since 2010, with an average loss of 0.48%. However, October presents a contrasting picture as the third-best month historically, with SPY averaging a 2.27% gain behind only November at 3.09% and July at 2.79%. The index enters October up 13.37% for the year, though this represents a narrow gain supported by a small group of large companies. The benchmark index has risen slightly but remains only about 1% below its record high, with many investors questioning whether this strength is sustainable given that the market for stocks is actually declining.
Losses reached every sector during September as Treasury yields climbed, with banks forming one of the largest declining blocks including JPMorgan, Bank of America, and Wells Fargo. Technology stocks also retreated, with Salesforce, Adobe, and Oracle among the declining names. However, gains came from select areas including Micron, Apple, and Dell in technology, extending the market's reliance on AI hardware. GE Vernova and Eli Lilly also posted gains, but these were insufficient to offset the broader market weakness. According to FactSet data, eight of the 11 sectors declined this month, with only Information Technology (+4.8%), Communication Services (+5.1%), and Energy (+2.1%) posting gains. The forward P/E ratio for the full index declined significantly to 19.2 from 22.2 at the end of last year, indicating that rolling 12-month earnings estimates have been rising more quickly than share prices on a weighted basis.
According to FactSet data visualized by Deena Zaidi, the 200-day moving average breadth indicator dropped to 40.55%, meaning nearly 60% of S&P 500 stocks now trade below their 200-day averages. This represents a significant decline of 2.59 points on September 30 alone, down from a peak near 73% in August. The current reading sits below the April 2026 low of approximately 42%, with the earlier trough preceding a rally that lifted breadth to its August high. Among individual stocks, 52% were showing declines of at least 5% for September, while 21% were down at least 21% for the month. The worst-performing stock was Fair Isaac (FICO), which sank 47.2% after Federal Housing Finance Agency Director Bill Pulte announced that VantageScore data would be used for federal agencies purchasing mortgage loans, potentially threatening FICO's traditional credit scoring business.
Historically, October has often rebounded after weak September performance, with similar recoveries following in 2021 and 2022. In 2011, a 6.94% September loss gave way to a 10.91% October rally. However, the pattern offers no guarantee, as three of the last six Octobers ended lower, including 2020, 2023, and 2024. The current seasonal outlook favors the S&P 500 in October, but the index enters with its weakest participation in more than a year, suggesting a broad recovery may require more stocks to reclaim their 200-day averages. Despite the weak September performance, investors can take some comfort that this year's rally for the cap-weighted S&P 500 has been driven by earnings growth, with the forward P/E ratio declining significantly to 19.2 from 22.2 at the end of last year.
