S&P 500 Seasonality Signals: A Period of Caution Ahead

As we step into the September–October window, historical patterns suggest that the S&P 500 could be entering a period of downward pressure. Seasonality – the tendency of markets to follow recurring trends during specific times of the year – indicates that this stretch often brings heightened volatility and a modest bearish bias.

Seasonality Insights

The data shows a 93.8% correlation with the past five years and an even stronger 93.9% correlation with the seven-year trend, making this seasonal signal particularly reliable. Historically, from early September until mid-October, the index tends to face consolidation or mild corrections before resuming a stronger trend toward the end of the year.

Looking at the seasonality chart of Forecaster.biz:

• The 5-year and 7-year averages both point to a sideways-to-downward move during this period.
• The current year’s performance, while stronger than average up until now, appears to be aligning with the historical curve.

S&P 500 Sept–Oct Seasonality: High Correlation, Bearish Bias (80% Short Wins in 5 Years) – Source: Forecaster.biz

Looking at the historical performance from 2018 to 2024, the September-to-October window shows a mixed but cautious picture. A hypothetical short trade in this period would have delivered gains in three out of the last seven years (2024, 2019, and 2022 being the most notable bearish stretches), with the 2022 drop of nearly 3.8% standing out as the largest correction. However, the other years demonstrate that this window is not uniformly bearish — in fact, years like 2022 and 2020 also showed significant upside potential, with maximum rises of +9.65% and +8.99% respectively. This historical volatility underlines why this period requires tight risk management: while seasonal tendencies point to weakness, unexpected rallies can quickly reverse short-term trades.

S&P 500 Sept–Oct Seasonality: 7-Year Performance Snapshot – Source: Forecaster.biz

Hedge Funds Signal Caution: Net Shorts Hint at Potential Pullback

Another important signal comes from hedge funds and leveraged traders, whose net positions are currently skewed to the short side. The chart clearly shows that net speculative positions (CFTC commission COT Report) have dropped to levels that, in the past, have coincided with market pullbacks on the S&P 500. Similar positioning patterns in early 2024 and mid-2025 were followed by notable corrections in the index. This widespread bearish stance among leveraged funds suggests that professional traders are hedging against potential downside risk, reinforcing the seasonal caution that typically characterizes this period of the year.

Hedge funds’ net shorts align with past S&P 500 pullbacks. – Source: Forecaster.biz

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Originally Posted on September 1, 2025