Wall Street Sounds Alarm on “Black September” — Are U.S. Stocks and Global Long Bonds Doomed?

TradingKey - After an August marked by record-breaking equities and rate-cut-fueled bond rallies, financial markets are entering September, historically the weakest month for asset performance — a seasonal trend known as the “September effect.” On the first trading day of the month, long-term bond investors in Europe and the U.S. are already feeling selling pressure, with major U.S. equity futures sharply lower in pre-market trading.

On Tuesday, September 2, amid worsening outlooks for future fiscal conditions, UK 30-year bond yields surged to their highest level since 1998.

Coincidentally, the UK is not alone in facing a bond sell-off. Long-term yields in France, Germany, and Spain — other eurozone nations — also hit multi-year highs, all driven by concerns over rising government spending.

Historical data shows that long-dated bonds typically perform worst in September. Over the past decade, government bonds with maturities over 10 years posted a median loss of 2% during the month.

Jefferies strategists attribute this seasonal trend to the supply side: long-term bond issuance typically increases in September, and this supply pressure is especially pronounced during the low-liquidity environment at the end of summer.

Other analysts note that September is often a month of sharp policy shifts, prompting investors to adjust positions in anticipation of potential changes.

Stock markets are also vulnerable to the “September effect.” On September 2, before the open, S&P 500 futures were down over 0.80%, and Nasdaq-100 futures fell about 1% — despite no major economic data release. Just last week, expectations of a Fed rate cut cycle had pushed the S&P 500 to a new all-time high.

Bank of America, citing data since 1927, notes that September is the weakest month for U.S. stocks: the S&P 500 averages a 1.17% decline, with 56% of Septembers ending in negative territory. Dow Jones data shows the Dow Jones Industrial Average has averaged a 1.1% decline in September since 1897, with only a 42.2% probability of gain.

Citadel Securities pointed out that since 2017, after strong performance in June and July, retail investor activity typically slows in August, and September sees the lowest retail participation of the year.

LPL Financial added that financial markets often shift in September, as investors move past the low-volume, low-volatility summer calm into a period traditionally associated with seasonal weakness and rising market instability.

While the prospect of Fed rate cuts remains a tailwind for equities, the narrative is shifting amid growing concerns over Fed independence — and rising expectations for long-term interest rates.

James St. Aubin, Chief Investment Officer at Ocean Park Asset Management, warned that with long-term rates proving unpredictable, he’s wary of chasing further gains.

“It’s a bad set up for risk taking right now, no matter where you look.”