Market Commentary: A Strong August Sets Stocks Up for a Better September Than Feared

A strong August and year-to-date gain make a severe September sell-off less likely, while unusually low interest rates relative to nominal GDP create an upside risk for bond yields.

• The S&P 500 was up 3% in August and close to 13% for 2026 by the end of the month, despite August and September being historically weak periods.
• September has averaged a 0.6% decline since 1950 and was positive only 45% of the time; however, all four worst Septembers began with the index down at least 10% year to date.
• In the authors’ sample of 11 years when August rose and the S&P 500 was up 10% to 17.5% beforehand, September was positive six times with a 1.2% median return, while the final four months gained 10 times with a 5.6% average return.
• The S&P 500 gained 2.0% and 3.5% in the previous two Septembers; only once before had it gained more than 2% three years in a row, during a four-year streak in the late 1990s.
• Nominal GDP growth averaged 5.5% annualized over 2024 Q1–2026 Q2 versus 5.8% in 1995–99, while 2026 Q2 growth reached 6.5%; yet three-month rates and 10-year yields averaged 4% recently versus 6% in 1995–99.
• Unlike the late 1990s, when real GDP growth averaged 4.2% and inflation 1.6%, the recent period combines weaker 2.1% productivity growth and 3.4% inflation; the fiscal deficit is near 6% of GDP versus a 1% surplus in 1999, increasing pressure on Treasury yields.

Takeaway: The historical setup supports a more resilient September and year-end, but if inflation and nominal growth do not fall materially, long-term yields may rise as rates remain too low relative to the economy, creating a risk for bonds and potentially equities.