According to reports from Investing.com India, September has historically been the most challenging month for equities, with the S&P 500 averaging -0.6% returns since 1950 and finishing higher less than half the time. The weakness has been particularly pronounced over the past five and 10 years, making the seasonal caution flag a legitimate concern for investors. Despite these historical patterns, stocks have enjoyed a powerful run off spring lows and have largely shrugged off concerns around growth, inflation, higher interest rates, artificial intelligence effects, geopolitics, and policy uncertainty. Recent market dynamics show $9.6 trillion of US options exposure expiring by September 18, with $6.2 trillion on the 18th alone, tracking to top June's record triple witching. The mechanics create a lopsided expiry structure where today's and tomorrow's expiries carry negative gamma while the entire positive balance lives in the September 18 monthly contract.
As reported by Investing.com India, September in midterm election years has averaged approximately -0.8% returns, which is essentially identical to a typical non-election September and no better than the long-term norm. The last midterm September in 2022 was particularly challenging, with the S&P 500 shedding more than 9% due to fears over the Fed's aggressive interest rate hiking campaign, high inflation, soaring Treasury yields, and mounting recession fears. However, the data shows that markets have generally responded more to the removal of uncertainty than to any specific political result. Recent analysis suggests that when August closes positive and year-to-date gains sit between 10% and 17.5%, September averages +1.0% returns since WWII, with the four best September performances on record all occurring in midterm years.
According to Investing.com India, the encouraging part of the midterm story lies in what has tended to follow September weakness. October has historically averaged close to 3.0% returns, with November not far behind at 2.7% returns. Both months dwarf the corresponding non-midterm year months and stacked together, the fourth quarter of a midterm year has been the strongest three-month stretch of the entire four-year presidential cycle. This pattern aligns with markets beginning to firm up as election uncertainty begins to clear. Recent market mechanics show that 70% of S&P members remain above their 200-day averages with genuinely broad participation, while the median 63-day correlation of S&P stocks to the index just printed +0.10, the lowest on record, indicating the index's calm is built on offsetting moves underneath.
As reported by Investing.com India, since 1950, stocks have been higher one year after every midterm election, with an average of almost 15% returns. This improvement from October onwards in midterm years has not depended on which party holds the Presidency, with markets generally responding more to the removal of uncertainty than to any specific result. The pattern suggests that markets can begin pricing the all-clear ahead of the vote, whereas the higher stakes of a presidential election keep investors on the sidelines until the result is actually known. Recent market positioning shows that top-100 pensions are 112% funded, the most since 2001, arguing for mechanical equity-selling into quarter-end, while retail's September dip-buying historically runs at half its normal rate.
According to Investing.com India, investors should remember that seasonal and election-cycle patterns are averages, not forecasts, and averages can mask enormous dispersion between individual years. With the Fed, the economy, and corporate earnings all still doing the heavy lifting, seasonality should be treated as additional context rather than a leading catalyst. The analysis suggests that any September pullbacks often prove temporary, particularly heading into what has been the strongest stretch of the midterm cycle and the typically strong following year, supporting a constructive setup into the fourth quarter. Recent market dynamics show that protection is nearly free with SPX one-month skew in its first percentile and VVIX in its first percentile since the start of 2025, while the Treasury buyback program ends November 4, one day after the midterms, creating additional mechanical pressure.
