The S&P 500's September 5-day 'bearish window,' when investors stand the least chance of making money, is here

• September 20 to 25 is the window in which investors have the least chance of making money on US stocks, one veteran trader says.
• In the past 30 years, on average, the S&P 500 has clocked its worst performance in September and its best in April.
• The coronavirus pandemic, uncertainty about the US election, and volatile technology stocks could exacerbate the effect, AxiTrader's Stephen Innes said.

The S&P 500 has fallen for three straight weeks, and things may be about to get tougher. This week the "bearish window," when investors have the least chance of making money on US stocks, is open, one veteran trader says.

On average, over the past 30 years, September has been the worst month for S&P 500 bulls, with a decline of about 0.32%, compared with April, when the index has registered an average gain of 2.1%.

Welcome to the "bearish window" of September 20 to 25, where 30 years of evidence says to expect five days of pain, said Stephen Innes, a veteran trader and chief global market strategist for the brokerage AxiTrader.

"Based on data gathered from over the past 30 years, the 20th to 25th September is the five day window in which you have the least chance of making money in US stocks," he said in a note on Monday.

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The effect is, generally speaking, an anomaly, not related to any external market event. The past few years of extreme investor bullishness and the trillions of dollars in fiscal stimulus that have flown into the equity market have mitigated this phenomenon somewhat.

Over the past 10 years, on average, September has still been the S&P 500's month of poorest performance, scraping into positive territory with a gain of 0.04%, compared with a gain of 2.5% in July.

However, in the past five years excluding this year, the honor of "worst month" has shifted to August, with an average decline of 1.02%, while July has been the top-performing month, with an average gain of 2.5%.

This year, investors are contending with an uncertain presidential election two months away, a Federal Reserve that has shown no signs of injecting any more stimulus into the financial system, and rocky technology stocks that have made tech by far the worst-performing sector this month.

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The SPDR Select Technology exchange-traded fund, a proxy for the US tech sector, has lost almost 9% so far this month as investors have booked profits on double- and sometimes triple-digit gains in stocks such as Tesla, Apple, and Amazon. This compares with a 6.3% fall in the S&P 500 itself.

"The Fed story is stale as week-old bread, and their balance sheet hasn't grown since June. At the same time, the fiscal storyline is stuck in the swamp," Innes said.

"Compounding matters, we're also on the precipice of traders and risk managers starting to fret about US election risk. There's a remarkable tendency for fear to build, and volatility rises about four to six weeks before voting events, even if we've talked about them for months ahead."

With several factors stacking up, this year's September bearish window could be more severe, he said.

"There's always a bit of a panic attack around these kinds of events, and this one could be worse when viewed through the coronavirus lens," Innes added.

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