Buy September’s Decline in Stocks as Market Heads for Best 3-Month of Year, Strategist Says

• Nasdaq 100 and S&P 500 declines in September present a buying opportunity, says Ned Davis Research.

• Weak seasonality data and overly pessimistic readings suggest strong growth is ahead in the 4th quarter, NDR said.

• NDR sees no signs of sharp bear market with positive earnings revisions and economic indicators.

A 6 percent decline in the Nasdaq 100 and a 4 percent decline in the S&P 500 since the start of September presents an attractive buying opportunity for investors, according to Ned Davis Research.

The research firm said in a note on Friday that the weakness in inventories so far this month is more than typical given weak seasonality data — but it’s also a big opportunity as the market heads into its most good period of three months of the year.

“As the weakness in September dampens optimism and sends sentiment indicators to excessively pessimistic readings, stocks could launch a sustained rally similar to the advance in the first quarter, supported by seasonal trends in the fourth quarter,” said NDR strategist Tim Hayes.

He added: “While a comparison of the three-month declines shows that August-October was the weakest, October-December was the strongest.”

Hayes finds it encouraging that, based on NDR’s internal readings, the stock market, economy and corporate earnings show no signs of being vulnerable to a sharp bear market downturn similar to what happened in 2022.

Analyst earnings revisions continue to trend higher, historically a leading indicator for corporate earnings.

“As with revisions, economic performance is a leading indicator of earnings growth, currently supporting the earnings outlook. While the likelihood of a recession has risen from the lows of May and June, it has not grown out of its bullish mode for stocks,” Hayes. explained.

All told, that means the current stock market decline is more likely to be a garden-variety correction that ultimately proves healthy for the sustainability of the ongoing bull rally that began in October 2022.

“Current growth will turn out to be just that, not the sign of a new bear market. It should lead to a buying opportunity in the bull market before the rally resumes in the fourth quarter,” Hayes said.

Read the original article on Business Insider