I’ve talked a lot about a challenging late-September seasonal for equities.

And I’ve talked a lot about the extent to which that seasonal might’ve been “pre-traded” this month.

More generally, September’s the worst month of the year for US stocks, and if the post-Labor Day swoon was any indication, 2024 isn’t likely to escape the curse.

In a Wednesday note, Nomura’s Charlie McElligott illustrated the September back-half downtrade recurrence (and also the market’s recent penchant for front-running it) with the table below.

“The September serial Op-Ex seasonality [shows] a powerful t+1 week SPX median pullback phenomenon, which has increasingly pre-traded the past five September Op-Ex ‘week ofs‘,” McElligott noted.

That’s daunting enough on its own (note that the pre-trade didn’t preclude additional losses, particularly not last year and the year before), but it could be exacerbated over the next month or so by a multi-faceted “acute liquidity drain,” as Charlie put it.

The relevant dynamics are i) mutual fund tax-loss harvesting into September/October year-end, ii) RRP drain from corporate tax payments in mid-September and individual tax payments next month, iii) the much-discussed buyback blackout, commencing next week and iv) quarter-end window dressing for US banks this month and year-end window dressing in October from Canadian banks, which McElligott noted “are not inconsequential players in repo finance.”

How concerned should you be about any of that? Well — and I try to be as honest as possible about this — it really depends on who you are:

• If you’re a “serious” trader or someone with a lot of money on the line and large, leveraged positions to manage on a day-to-day basis, the answer’s “concerned.” Or at least “apprised.”
• If, on the complete other end of the spectrum, you’re a buy-and-hold investor with three unlevered longs — SPY, TLT and GLD — that you intend to hold until Christ finally shows back up or you get tired of waiting and go to him, whichever comes first, the answer’s “unconcerned.”

Either way, don’t say you weren’t warned.