The Market Rally Keeps Gaining After April's Tariff Shock -- but Can It Hold?

Key Points

• September is known to be a poor month for the stock market, but history doesn’t always repeat itself.

• Corporate and economic news could offer the market direction in the weeks to come.

• When investing, it’s important to take a long-term view.

• 10 stocks we like better than S&P 500 Index ›

Back in April, the stock market and general economic environment gave investors reason to frown. President Donald Trump had announced a broad list of import tariffs to be applied to countries around the world -- and analysts, economists, and investors feared that such tariffs would not only pressure the economy, but possibly drive it into a recession. Along with this, companies and the consumer would suffer as tariffs ate into their budgets.

But the catastrophic scenario didn't play out. Trump embarked on negotiations with countries regarding the tariffs, companies put into place measures to better handle potential tariff impact, and the general economic and stock market environment brightened. In fact, stocks actually roared higher, and the S&P 500 (SNPINDEX: ^GSPC) in August, after reaching new record highs, completed its fourth consecutive month of gains.

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Now, as we head into September -- a month known to be poor for stock market performance -- can the rally hold? Let's find out.

Image source: Getty Images.

What history says

When wondering about the future, investors often look to the past for clues. How has a particular index performed in the past in such a situation or during a particular month?

In this case, if we consider what history has to say, we're likely to be disappointed. That's because September is a historically bad month for stocks, with this month being the worst for the S&P 500, the Dow Jones Industrial Average (DJINDICES: ^DJI), and the Nasdaq Composite (NASDAQINDEX: ^IXIC), CNBC reported, citing The Stock Trader's Almanac. This reflects data dating back to 1950. And a look at recent Septembers supports this idea.

Data source: YCharts.

All this means that, if history is right, September may mark a pause or even an end to the current rally. But history doesn't always repeat itself, and corporate and economic news could determine what happens next in the market. For example, Federal Reserve chair Jerome Powell's recent comments suggested an interest rate cut could be on the horizon -- and stocks immediately soared following those comments. Policymakers will meet from Sept. 16 through 17 to make a decision, and that decision clearly could impact the market.

The tariff situation also may play a role in market movement in the weeks to come, as a federal appeals court recently ruled that some of Trump's tariffs are illegal. Any additional news on this could push investors toward or away from stocks most sensitive to these duties, such as U.S. companies that rely on imports.

Comments from Nvidia

As for corporate news, earnings season is over, but companies that serve as bellwethers may move the market if they make important announcements. Any messages from Nvidia or other big tech players on artificial intelligence (AI) spending could offer the market a direction in the weeks to come. And Nvidia itself may surge if the company beats its latest challenge and resumes sales of its chips in the Chinese market. The U.S. government has agreed to grant the company licenses in return for 15% of sales in the country, but a plan hasn't yet been put into place.

These bits and pieces of economic or corporate information could determine market direction in the near term.

What should investors do now?

So in the meantime, what should investors do? One thing in particular. And that's focus on the long term. If you buy quality stocks and hold onto them for a number of years, it really doesn't matter if the market -- or your holdings -- fall during one particular month or struggle during a market downturn. A strong company with solid long-term prospects is very likely to recover and go on to gain over time, so if you hold on to the stock and focus on the future, you're likely to keep calm now and score a win later.

It's important to remember that the S&P 500 has delivered an average annual gain of 10% since it first launched as a 500-company benchmark back in the 1950s, so even after market downturns and crashes, it's recovered and progressed. And if you look at quality companies with a proven track record of solid products or services and earnings growth -- such as Coca-Cola or American Express, for example -- you'll see the same trend.

All this means, whether the current rally continues through September or not, don't worry. Any short-term movement isn't likely to interfere with your potential for investing success over the long haul.

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American Express is an advertising partner of Motley Fool Money. Adria Cimino has positions in American Express. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.