Talking Points:
- There is a seasonal activity and participation pick up through the month of September following 'Summer Doldrums'
- The transition is loosely around the US Labor Day holiday; but practically, it takes time to engage momentum
- Trading approach still favors shorter duration and practical objectives, but be mindful of change
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Historically, the month of September marks a turning point for the markets. Volume and volatility rise on average through this transitional period from 'Summer Doldrums' to expanded market depth and heartier swings. What's more, this has been the only month of the year where the S&P 500 (a general barometer for 'the market' and 'risk appetite') actually fallen on average. The implications are intense and alluring given the scarcity of significant moves to be found through the past 12 to 16 months. However, it is important to keep appetites in check and look at conditions dispassionately for what is actually being offered. Looking at the past 10 years of historical performance for the VIX for example, activity does not typically rise immediately after the passing of the Labor Day holiday.
What is particularly limiting in current conditions is the deeply ingrained complacency that has built out of a structural curb via expansive monetary policy efforts and an extreme speculative reach. Neither will hold sway over the market indefinitely, but it can hold out 'just a little longer'. This structural curb on activity and risk bearing should further encourage us to contemplate the risks and trades that we are willing to jump into just because of the changing seasons. I will view it as another source of potential to alter the foundation of the markets and to release pressure that has continually built over years; but my trading approach will remain oriented to the limited engagement we've come to expect from the markets through the past months until the change is obvious and permanent. We expand on this theme in today's Strategy Video.
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