In September 2022, the S&P 500 experienced a rare gain of 2%, contrasting with its typical performance. Historically, September has been the worst performing month for the index since the year 2000. This is partly attributed to major events like the financial crisis in 2009 and the return of policymakers after the summer, often leading to market disruptions. Additionally, there’s a tendency among market participants to secure profits before the year’s final months.
September Market Trends
Several trends have been observed in September over the past two decades. It is the second worst month for Germany’s DAX, following August, yet it heralds a strong three-month period thereafter. Natural gas typically begins a robust three-month upward trend in September, although this trend is often anticipated in pricing. Conversely, West Texas Intermediate crude oil enters a weak three-month period starting September. The MSCI world index faces its worst month in September, while silver and gold also experience downturns, with September being the worst month for gold. Despite this historic weakness, current market conditions suggest potential movements in gold prices.
Given the historical weakness of risk assets in September, we should be cautious as we enter the month. The S&P 500 just backed off its record high of 5,800 set in late August, and with policymakers returning from vacation, the risk of disruptive headlines increases. We should consider buying put options for downside protection or selling out-of-the-money call spreads to capitalize on a potential stall.
This trend isn’t just a US phenomenon, as the MSCI world index also historically has its worst month now. Recent manufacturing PMI data from Germany registered at 48.5, indicating contraction and adding headwinds for the DAX. While a strong fourth quarter often follows for German stocks, we might see better entry points by waiting for a dip later this month.
Despite looking like it could break out, gold failed to hold above the key $2,450 level last week as the US Dollar Index firmed up. September is seasonally the worst month for both gold and silver, so this rejection at resistance is a significant warning sign. We could look to short gold futures or sell calls, anticipating a pullback towards the $2,380 support area.
Natural Gas and Oil Projections
WTI crude oil is also entering a period of seasonal weakness that often lasts for three months. Last week’s EIA report showed a surprise inventory build of 1.8 million barrels, suggesting supply is outpacing demand as the summer driving season ends. Looking back at both 2023 and 2024, oil prices saw significant declines in the fourth quarter, and we could see a similar pattern begin now.
Conversely, we are entering a strong three-month seasonal period for natural gas. Early weather forecasts are predicting a cooler-than-average start to October, and US storage levels are currently 3% below the five-year average. This setup suggests we should be looking to build long positions through call options or futures contracts to capture potential price spikes as heating demand begins to ramp up.
