September Stock Weakness Could Be a Buying Opportunity, Yardeni Says

September's historical reputation as the weakest month for stocks could present a significant buying opportunity for investors, according to a recent note from Yardeni Research. The firm suggests any market dip this month could pave the way for a traditional year-end rally.

A Seasonal Buying Opportunity

In a note to clients, Yardeni Research acknowledged the market's awareness of September's tendency to be the "cruelest month for stocks." However, the firm argued that when the month proves difficult, it often "tends to create buying opportunities for a year-end rally that often starts in October."

This perspective comes as investors grapple with several market headwinds, including rising global bond yields, elevated oil prices, and persistent pressure on central banks to tighten monetary policy.

Bond Yields Seen as 'Normalizing'

While Yardeni shares the concerns of so-called "bond vigilantes," the firm is not convinced that yields are at, or will soon reach, prohibitively high levels. The note posits that yields are simply normalizing after an extended period of being abnormally low following the global financial crisis.

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Yardeni anticipates that strong demand for U.S. Treasuries would emerge if the 10-year yield, recently near 4.80%, were to reach 5%. The firm contrasted this with the 6.6% year-over-year growth in U.S. nominal GDP during the second quarter.

Economic Strength Underpins Outlook

To support its outlook, Yardeni Research pointed to a series of strong economic indicators suggesting the U.S. economy remains healthy. The firm highlighted several key data points:

• Labor Market: July JOLTS figures indicate a labor market at or near full employment.
• Consumer Spending: Redbook same-store sales showed a robust increase of 8.7%.
• Manufacturing: The sector recorded its eighth consecutive month of expansion.
• Investment: Construction of data centers is reportedly surging.

Furthermore, the note referenced the Atlanta Fed’s GDPNow model, which at the time of the report projected third-quarter economic growth at a strong 4.8%.