Prediction: September Will Be Volatile, but Stocks Will Rally After November Midterms

September has historically been the worst month for the stock market, but I predict that stocks will rally strongly after the November midterm elections, and history backs me up. However, investors will likely have to get through a rough stretch in the market first.

September is only one of two months where the long-term average monthly return for the S&P 500 index (SNPINDEX: ^GSPC) has been negative. It also isn't just slightly negative, as the month has generated a negative 1.1% average return from between 1928 and 2025, according to Macrobond. The next closest worst month is February, with a negative 0.1% return over the same period.

The monthly average also isn't impacted by just a few bad years. Since 1928, the stock market has had negative returns 55% of the time. Meanwhile, it's the only month of the year when the S&P 500 has a negative median return. When the S&P 500 has a down year in September, the average loss for the month is 4.7%. The return data also isn't cherry-picked. You could start at the beginning of any decade (for example, 1940 or 2010), and the average September return would still be negative.

Now, why September is the weakest month of the year for stocks is not entirely clear, but it may coincide with fund tax-loss selling. The fiscal year for most mutual funds ends on Oct. 31, so it would make sense for funds to be doing a lot of tax-loss selling around this time.

September is also right ahead of election season, and midterm elections, like the ones we will have this year, tend to rattle the markets. Investors dislike uncertainty, and that is one thing elections are sure to bring. Historically, stocks are volatile during the September-October period ahead of midterm elections, following the generally quiet summer months when many Wall Street pros are on vacation. According to Cantor Fitzgerald, since 1930, the S&P 500 has slid 5% or more during the September-October stretch in 63% of the past 24 midterm election years.

Throw in the current war with Iran, a struggling consumer, AI worries, and potentially rising interest rates, and this September-October stretch is likely to be highly volatile.

Image source: Getty Images.

Future strong gains

Despite the likely volatility of the next month-and-a-half, I predict that stocks will probably have a nice rally over the next year once the midterm elections, slated for Nov. 3, are finished. The reason for my confidence is that the S&P 500 has recorded gains in the 12 months following midterm elections 95% of the time since 1938 and 100% of the time since 1950. That's an incredible track record. Meanwhile, the S&P 500 has generated an average annual return of about 14.5% over the 12 months following such elections since 1950.

Now, there is no guarantee that this historical stock pattern will continue, but over the long term, stocks are still a great investment. As such, I think investors should keep to a simple strategy.

First, I wouldn't make any drastic changes to my investment strategy. I strongly believe that investors are best served by having a core index exchange-traded fund (ETF) holding, like the Vanguard S&P 500 ETF(NYSEMKT: VOO), that they consistently dollar-cost average into on a regular basis in both good markets and bad. I think this should largely be non-negotiable for most retail investors.

Then, more active investors can raise a little cash and be ready to pounce on any bargains that may start to pop up toward the middle to end of October. Look for stocks with wide moats and durable business models that have strong growth prospects ahead and may be suddenly on sale. Do these two things, and you'll be ready for whatever the market has in store next.

Geoffrey Seiler has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.