It’s the Friday before Labor Day and the first day of September. For me, the seasonal transition from summer to fall is always a melancholy time. Days turn cold; nights grow long. It’s especially dispiriting if the month of August has punished the stock market.

Sure enough, equities took a beating last month. Below, I review the stock market’s performance in August and examine what we might expect in the month ahead.

In my August 7 column, Beware: The “Dog Days” Can Still Bite You, I warned you not to get too comfortable in your beach hammock. I was unfortunately correct.

The main U.S. stock market indices lost ground in August, as follows: The Dow Jones Industrial Average -2.4%; the S&P 500 -1.7%; the NASDAQ -2.2% (its worst monthly loss of 2023); and the Russell 2000 -5.4%. That said, a recent string of positive sessions helped the indices trim these monthly losses.

The good news is that cooling employment data support the narrative that the Federal Reserve may not need to raise rates again at its next Federal Open Market Committee (FOMC) policy meeting on September 19-20.

The U.S. Bureau of Labor Statistics reported Friday that total nonfarm payroll employment increased by 187,000 in August, versus 170,000 estimated. The unemployment rate rose by 0.3 percentage point to 3.8%, as the labor force participation rate jumped to 62.8%. Average hourly earnings were up 0.2%.

Friday’s data showed a decelerating (but still strong) labor market, which cheered Wall Street. Amid these disinflationary conditions, the Fed is likely to be less hawkish.

On Friday, the U.S. equity benchmarks kicked off September on a hopeful note and closed mostly higher, as follows:

• DJIA: +0.33%
• S&P 500: +0.18%
• NASDAQ: -0.02%
• Russell 2000: +1.11%

It also helps that the U.S. personal consumption expenditures index (PCE) for the month of July, released Thursday, was roughly in line with consensus expectations on a headline and core basis.

Because of its broad-based nature, the PCE is the Fed’s preferred inflation gauge. The PCE, consumer price index (CPI), and producer price index (PPI) have all been gradually easing since peaking in the summer of 2022. These inflation trends have led to falling Treasury yields, which in turn have supported bond prices.

The bad news: The S&P 500 historically has posted its worst monthly performance in September, with an average decline of 0.7%, according to data going back to 1945.

Read This Story: Autumn: When the Frost Is on the Pumpkin (and on Equities)

On August 31, the S&P 500 closed out the month above its 50- and 200-day moving averages:

However, as you can see from the above chart, the S&P 500 faces a test of its 50-day moving average. Technical traders use moving averages as a gauge of short and long-term momentum. A breach below the 50-day average could be interpreted as a short-term shift away from bullishness.

Still on course for a soft landing…

Backed by a resilient labor market and healthy household finances, consumers have kept the economy out of recession. U.S. economic data over the past three months have consistently come in better than feared.

The economy was previously projected to contract during the last two quarters of 2023, but economists have revised their estimates upward.

The Atlanta Fed currently estimates that U.S. gross domestic product (GDP) growth in Q3 will come in at an annualized rate of 5.8%. At the same time, jobs and wage growth have been moderating, which gives the U.S. central bank leeway to pause this month.

Corporate earnings growth is expected to pick up steam as well. For Q3 and Q4, analysts are projecting earnings growth for S&P 500 companies of 0.2% and 7.6%, respectively, according to research firm FactSet. For all of calendar year 2023, analysts are expecting earnings growth of 0.8%.

The problem is that the full effect of the Fed’s fight against inflation is lagging, which means it may not have been felt yet.

Suddenly, last summer…

The first day of fall this year is Saturday, September 23. As we head into Labor Day and the unofficial end of summer, brace yourself for volatility and a likely slump in equities.

I still believe the foundation is in place for the resumption later this year and into 2024 of the stock market rally we enjoyed in the summer of 2023. Accordingly, the autumnal rough patch ahead can be viewed as a long-term buying opportunity.

However, if you’re looking to immediately profit from the uncertainty I’ve just described, I suggest you heed the advice of my colleague, Jim Pearce.

Jim Pearce is the chief investment strategist of Mayhem Trader. Jim doesn’t worry about market mayhem…he makes money from it.

Jim has developed an under-the-radar strategy to flip market mayhem into fast payouts. Want to learn more? Click here now.

John Persinos is the editorial director of Investing Daily.

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