Last month we wrote that there was objective evidence to suggest there may be market pause in following weeks. The month began with a sharp one-day decline and endured 5 straight negative days in the middle of the month, the longest such streak in over a year. But investors continued to buy the dips, and the S&P 500 closed the month up 1.9%. Such resiliency has been a defining characteristic of the market over the past 4 months.
The short-term indicators are mixed, though they have stabilized in recent weeks. Seasonality suggests potential weakness as historically September has the lowest positivity rate and lowest average return of any month according to data from S&P. However, we note that a lot of recent commentary has pointed out September’s historical weakness, which may reduce its effectiveness as a signal this time. In short, we do not have a strong opinion on the future direction of the market in the next month or two. However, we think it would be wise for investors to be mentally prepared for a pullback. Longer term evidence suggests any market pullback should be shallow and short-lived; thus, we want investors to react appropriately.
We do have a strong opinion, based on the available evidence and our process, that the market remains on strong footing over the longer term. One important reason is that corporate earnings continue to exceed expectations. Second quarter earnings increased 11.9% over the same period in 2024. Furthermore, the percentage of companies increasing their future earnings projections is above the 5- and 10-year averages, according to Factset. Looking to 2026, analysts are currently expecting 13.4% earnings growth. As long as those earnings estimates remain, the market should continue to be resilient.
This is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here.
