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S&P 500 Records Worst Monthly Performance of 2023, Slumping ~5% in September

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S&P 500 Records Worst Monthly Performance of 2023, Slumping ~5% in September

The S&P 500, the leading benchmark index of Wall Street, closed September at 4,288.15 points, marking a monthly decline of 4.87%. The SPDR S&P 500 Trust ETF (NYSEARCA:SPY), which tracks the performance of the S&P 500, also dropped by 5.08% during the month.

September: The Historically Challenging Month for Markets

September has always been a difficult month for financial markets, and this year was no exception. In fact, the S&P 500 recorded its worst monthly performance since December 2022, marking back-to-back declines for the first time since August and September of the previous year.

The Federal Reserve’s Impact on the Market

The primary driver behind this month’s market retreat was the Federal Reserve. On September 20, the central bank’s monetary policy committee decided to keep interest rates steady, as many had anticipated. However, the Fed’s updated dot plot of economic and rate projections was unexpectedly hawkish. Federal Reserve Chairman Jerome Powell also indicated that a soft landing was not the central bank’s baseline expectation.

This revelation sent shockwaves through the markets, leading to a sell-off in both equities and bonds. In addition to the Fed’s actions, a variety of other factors contributed to negative sentiment in September, including surging crude oil prices, mixed economic data, an extended pullback in technology stocks, a major strike by the United Auto Workers against the “Detroit Three” carmakers, and the potential for a government shutdown.

Analysts’ Perspectives

Keith Lerner, co-chief investment officer at Truist, explained, “Our view since the end of July was that the market would be challenged in the seasonally difficult period of August through September. In the first half of the year, the market was boosted by positive economic, earnings, and inflation data. However, as we moved into the second half, the bar for positive surprises was raised.”

Lerner also highlighted the challenges posed by higher interest rates, elevated oil prices, the UAW strike, the restart of student loan payments, and the potential government shutdown. He noted that the most significant challenge for the market has been the sharp rise in the 10-year US Treasury yield, which has put pressure on valuations.

Outlook and Opportunities

After a strong rally in the first half of 2023, with the S&P 500 advancing nearly 20%, the index has now ended two consecutive months in the red. The path ahead remains uncertain, and the key question is whether a soft landing—a scenario where inflation is controlled through a cyclical slowdown in economic growth—can still be achieved.

Lerner expressed optimism, pointing out that the market is currently oversold and suggesting a potential bounce. However, the sustainability of this bounce will depend on yields cooling from their elevated levels and the upcoming earnings season.

Sector Performance in September

In September, all 11 sectors of the S&P 500 ended in negative territory, with Energy being the sole exception. The rate-sensitive Real Estate sector was the month’s biggest loser, falling nearly 8%, followed by the Technology sector, which declined by about 7%. Below is a breakdown of the performance of each sector:

  • Energy: +2.46% (Energy Select Sector SPDR ETF – XLE: +1.65%)
  • Health Care: -3.10% (Health Care Select Sector SPDR ETF – XLV: -3.36%)
  • Financials: -3.25% (Financial Select Sector SPDR ETF – XLF: -3.52%)
  • Communication Services: -3.27% (Communication Services Select Sector SPDR Fund – XLC: -3.19%)
  • Consumer Staples: -4.79% (Consumer Staples Select Sector SPDR ETF – XLP: -5.43%)
  • Materials: -5.05% (Materials Select Sector SPDR ETF – XLB: -5.24%)
  • Utilities: -5.83% (Utilities Select Sector SPDR ETF – XLU: -6.40%)
  • Consumer Discretionary: -6.01% (Consumer Discretionary Select Sector SPDR ETF – XLY: -5.70%)
  • Industrials: -6.06% (Industrial Select Sector SPDR ETF – XLI: -6.33%)
  • Information Technology: -6.91% (Technology Select Sector SPDR ETF – XLK: -6.68%)
  • Real Estate: -7.82% (Real Estate Select Sector SPDR ETF – XLRE: -7.97%)

For a visual representation of the year-to-date performance of each sector, as well as their comparison to the S&P 500, refer to the chart below:

Conclusion

September was an incredibly challenging month for the S&P 500, with the index recording its worst monthly performance of 2023. The Federal Reserve’s hawkish stance on interest rates and other external factors significantly impacted market sentiment. However, there is hope for a potential oversold bounce in the market, provided yields decrease and upcoming earnings reports are positive. Investors should closely monitor these dynamics as they navigate the uncertain path ahead.