September was a sad month, but not just for the stock market. Before I get to the business at hand, I want to pay tribute to my friend Tobias Levkovich, who sadly passed away on Friday after succumbing to injuries sustained after he was hit by a car in early September. I first met Tobias, who was Citigroup’s long-time Chief Equity Strategist, nearly two decades ago. He took on the role at Citi at about the same time as I took on my current role as Schwab’s Chief Strategist. I’ve been a great admirer of his work since then; but also his humanity, humility and humor. Tobias made me, and many of us, better strategists and will be missed by us all. Rest in peace my friend.
Onward and downward?
September closed with a whimper (from folks hoping the seven-month stretch of positive performance months for the S&P 500 would make it to eight). The month also held true to the history of September being the worst month for performance on average since the index’s inception in 1928. There were no shortage of risks conspiring to bring the market down a notch; including ongoing debt ceiling negotiations, fiscal policy uncertainty, monetary policy uncertainty (including over whether Jerome Powell will keep his position as Fed head), global supply chain bottlenecks, slowing economic and earnings growth projections, and ongoing inflation fears.
From the S&P 500’s all-time high on September 2, the drawdown through the final day of the month was -5.1%; ending a streak of 211 trading days without at least a 5% pullback—the longest since January 2018. As shown below, nearly every historically-lengthy streak without at least a 5% pullback occurred during secular bull markets (with the exception of 2004); although more than 40% ultimately turned into at least a 10% correction.
For all the chatter about “the market” having been resilient this year; that really just refers to the “benchmark” S&P 500 at the index closing level. The churn and weakness under the surface has been more significant. As of last week’s close, more than 90% of the S&P 500’s constituents have had at least a 10% correction from their highs. For the NASDAQ, it’s just under 90%; while for the Russell 2000, it’s a loftier 98% (meaning nearly every small cap stock in that index has suffered at least a 10% correction from their highs this year).