The S&P 500 opened the month well, posting a new closing high (54th of the year), on Sept. 2, 2021 (4,536.95; it has posted at least one new closing high in each month since November 2020). It should have closed the month and quarter then (and missed all the fun in Washington), but instead, it went on to live up to the September tradition of being the worst month of the year (averaging a decline of 0.99%; the month is negative 53.8% of the time), as it struggled (to put it nicely) the rest of the month. To be fair, the damage was controllable and the sells were orderly (with the worst one-day drop being -2.04%, on Sept. 28, 2021), as the month ended with a 4.76% decline—the first monthly decline since January 2021's -1.11%, and the worst since March 2020's 12.51% decline. September ended leaving the index up a modest 0.23% for the quarter (Q3 2020 was up 8.47%), 14.68% YTD (15.92% with dividends), up 27.21% (30.62%) from the pre-COVID-19 Feb. 19, 2020, high (3,386.15), and up 92.52% (97.28%) from the March 23, 2020, recent low (2,237.40). To be fair again (and I don't want to make a habit of it), September is when the market gets back to business after summer vacation, as do those nice people in Washington. This year, however, seemed to put more on DC's plate than the annual budget, which was approved and signed hours before the deadline (debt limit and a few stimulus programs remain in negotiations), and normal political games, which have increased in intensity. The Fed set a tentative schedule for tapering to start this year (and end mid-2022), as it indicated a potential interest rate increase in late 2022 or early 2023. The market initially accepted the two schedules with a slight decline, rather than a correction, but then it focused on higher interest rates, as the 10-year U.S. Treasury Bond rose above 1.50% (reaching 1.56% and closing at 1.49%; it closed September 2020 at 0.68%, September 2019 at 1.68%, and September 1981 with an extra digit, at 15.85%). In the background was also the YTD gains waiting to be taken (20.41% at the end of August), the impact of the COVID-19 variant, which most on the Street still see as "transient," and the Fed's makeup (two resignations and the Warren-Powell issue, which on a higher level is more about the battle within the Democratic party).
On my front page were the new records for Q2 2021 stats: earnings were up 9.7% over Q1 2021 and 94.2% over a COVID-19-depressed Q2 2020; sales came in up 5.5% from Q1 and 21.7% year-over-year; and margins increased 13.55% (the average from Q1 1993 is 8.07%). Buybacks and dividends also did well (Q3 dividend payments have set a new record, and we'll do a release next week; Q2 buybacks were 11% away from a record).
At this point, a nice shakeout has been due for so long that when it comes, there should be few surprises (but there will be some). Higher interest rates, short-term (hopefully) COVID-19 spread, shortages, and volatile U.S. economic dominance may all justify a downturn, but in the end, one is due (and possible if the buying stops). The bottom line for September in the market is if -4.76% is the payback (which it likely won't be; more could be expected), then "play it again, Sam" (absent COVID-19). The S&P 500 closed at 4,307.54, down 4.76% (-4.65% with dividends), from last month's 4,522.68 close, when it was up 2.90% (3.04%) and the prior month's 4,395.26 close, when it was up 2.27% (2.38%). The three-month return was 0.23% (0.58%), the YTD return was 14.68% (15.92%), the one-year return was 28.09% (30.00%), and the index was up 27.21% (30.62%) from its pre-COVID-19 Feb. 19, 2020, closing high. The Dow® ended the month at 33,843.93, down 4.29% for the month (-4.20% with dividends), from last month's 35,360.73 close, when it was up 1.22% (1.50%), as the three-month return was -1.91% (-1.46%), the YTD return was 10.58% (12.12%), and the one-year gain was 21.82% (24.15%).
The S&P 500 posted 1 new closing high in September (12 in August) and 54 YTD; it has posted new closing highs in every month since November 2020 (it missed October 2020 but had new closing highs in August and September 2020). The index closed up 27.21% (30.62%) from its pre-COVID-19 Feb. 19, 2020, closing high (73 new closing highs). Since Biden won the Nov. 3, 2020, U.S. election, the S&P 500 has gained 27.85% (29.62%), and there have been 52 closing highs since his inauguration. The bull market was up 92.52% (97.28%) from the low on March 23, 2020. The index closed down 5.06% from its closing high of 4,536.95 (set Sept. 2, 2021).
On Capitol Hill, the U.S. Congress raced to find a compromise on the debt and budget in order to avoid a government shutdown. Congress passed a stop-gap budget through Dec. 3, 2021, with Biden signing hours before the deadline. The USD 3.5 billion healthcare, education, and climate bill started to take shape, including a 2% tax on buybacks by publicly traded issues, but remained a work in progress. A vote on the USD 1 trillion Infrastructure bill was delayed into October as talks continued, as progressives attempted to link the USD 3.5 trillion climate, education, and social bill to it.
The S&P 500 one-year target price increased for the month (even though the index declined), as it broke 5,000 for the first time, at USD 5,018 (a forward high estimate), a 16.5% gain (10.4% last month) from now (USD 4,993 last month and USD 4,905 the previous month). The Dow target price was USD 39,270 (a forward high estimate), a 16.0% gain (10.8%) from now (USD 39,166 last month and USD 38,796 the month before).