September’s Seasonal Leader May Surprise You VIEW IN BROWSER
By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - A green August doesn’t guarantee a green September
- A new month, a new seasonal sector leader
- Why this Discretionary stock is our top seasonal pick
- Nvidia’s earnings in focus
- Why it’s a soft sell now and a strong buy later
2025 has been the year to “expect the unexpected”… It’s been one wrench in the works after another… The Liberation Day crash of April was just one example. The tariff onslaught saw the S&P 500 and the Nasdaq 100 briefly enter bear markets before a fast recovery. The revival of inflation is another. The most-watched number of the past few years has been creeping upward, with the Core CPI rising back above 3%. Weakening jobs data was another shock, with the biggest monthly downward jobs revision ever putting the Fed between a rock and a hard place that are pulling them in different directions. Even the month of August has perfectly captured this… Absent any surprises today, August will be another positive month for the S&P 500. As I write, it’s up 2.3% from its July close. As dedicated readers will know, this is not what we expected. Over the last 15 years, the S&P 500 has been positive in August a little less than half of the time. In 2016 and even 2017, the latter an especially great year for stocks, the S&P 500 closed flat. Those are the tiniest green bars on the chart below. And as you’ll see from all the big, red bars – usually August marks the start of the late-summer volatility that tends to last through October: 
We did expect a volatile month based on this, and it certainly has been. We saw a mid-month drop of nearly 2%… and a big drop on the first trading day of August. And hey, the fat lady hasn’t sung just yet. Nvidia’s (NVDA) spotty earnings report Wednesday – which we’ll cover below – will hang heavy around the market’s neck as we approach the monthly close. But today, let’s look ahead. And as we always do here at TradeSmith, we’ll look ahead through the lens of data, not guesswork. Today, we’ll use our software to look at the returns we’ve historically seen in September when August closes positive. Then, we’ll check in on the top sectors and stocks to own, no matter which way August goes. | Recommended Link | | | | The mainstream media isn’t talking enough about this story yet… but the Fed just called it “a breakthrough” for Americans. The Financial Times calls it a “gold rush.” Tech giant Stripe just quietly invested $1 billion in it. And our Wall Street insider says it could turn into an investing frenzy, now that Congress has signed off on it. Get the story here first, while there’s still time. |  | | Let’s first assume August does close positive… When this happens, you might think that the following September has been just as strong. Turns out, that doesn’t bear out in the historical data. Over the last 15 years, the average return for the S&P 500 in September was -0.94%. And it was lower in eight of those years. That’s about three times as bad as August, which has fallen an average of -0.36%. The chart below from our Seasonality tool shows that positive September returns for the S&P 500 are generally mild. Negative returns, especially in recent years, were more dramatic: 
But surely, in those years where August was positive, September must carry through… right? Not really. Here are the September returns for each year August was positive. Despite the smaller sample size, the average return is still poor – at minus 0.78%. 
September is just a bad month to be in stocks. Even in otherwise strong summer trends. Will that be the case this year? Only time will tell. But here at TradeSmith, we have the tools to dive deeper and keep the edge on your side… Let’s look at how each market sector stacks up in September… I’ve compiled all the seasonal returns for each of the main market sector ETFs. Assuming you bought on the first trading day of September each year, and held for 21 trading days (about a calendar month), this is the result: 
Where August saw the energy sector as the biggest loser, September sees its fortunes turn. The SPDR Energy ETF (XLE) has been up in nine of the last 15 years, with the second-highest positive trade result of the group at 4.6%. But it also has the biggest loss during losing years, at -7.9%. That drags down the average trade result into the red. Only two sectors in the list have been positive in September on average – Discretionary (XLY) and Industrials (XLI). XLY has been positive more often and for a larger average return. XLI has been positive less than half the time. But it also boasts the highest average return of the group – a 4.9% return. If I had to pick one, I’d pick Discretionaries. The reason why is this chart: 
As I write, XLY has been the best-performing sector this August. As Health Care stocks cooled, Discretionary stocks continued their strong uptrend. Energy also performed well – going from the worst sector of the month just a few weeks ago to beating the S&P 500. Industrials, meanwhile, rank second worst. The trend is behind Discretionary stocks above all, as investors are pricing in the stimulative effect of the Fed’s anticipated interest rate cut. If short-term lending rates fall, the popular idea is that debt pressures may ease on consumers… which can stimulate spending. Whether that’s how it will turn out is up for debate. What matters is investors seem to be thinking this way right now. So if the Fed does cut in September, as now seems likely, investors will get the confirming factor they need to keep pushing the Discretionary sector higher. Let’s do a deeper dive on that sector… Here are the top 10 holdings of the SPDR Discretionary ETF (XLY), along with their seasonal performance in September, sorted by average winning trade: 
There’s a lot to like about the Discretionary sector in September. Amazon.com (AMZN) leads the way with an average return of about 10%. But the most consistent winner is cruise liner company Royal Caribbean Group (RCL). That stock has been up 66.7% of the time in September. And when it’s up, it returns 9.5% on average. Only Nike (NKE) and McDonald’s (MCD) are neighbors on win rate, and neither can boast average returns anywhere close. RCL has such a strong seasonal trend in September (all the way through mid-November), it was just recommended as part of our Seasonal Edge strategy. 
This trading strategy, which we debuted in January, takes advantage of the strongest seasonal trends in stocks with the most favorable technical setups. We ran a rolling test of this method from 2006 to 2024, with each year testing the previous 15 years of price data for over 5,000 stocks. Seasonal Edge yielded a total return of 857%… with performance that doubled the S&P 500 on average every single year. And that’s without using options or leverage of any kind. (Although, we do provide call options recommendations for subscribers who like to partake.) Nvidia’s growth is finally pumping the brakes… Investors duck and cover in the minutes before Nvidia’s earnings announcements. For good reason: The stock commands a massive 7.6% of the S&P 500. That’s bigger than the bottom 200 companies in the index combined. And that’s a historic high for any single stock going back to at least 1981. As goes NVDA, so goes the stock market. And now, on the other side of the report, Wall Street is finding some reasons to keep their helmets on. Earnings beat expectations. NVDA reported $1.05 a share in earnings against a consensus call of $1.01. Revenue came in at $46.7 billion against expectations of $46.2 billion. That’s the core “beat” we want to see in every earnings report. But the devil, as ever, is in the details. NVDA’s data center segment is the core of its AI infrastructure business and the biggest slice of its revenue pie. It came in below expectations – $41.1 billion vs. $41.3 expected. A miss of $200 million, but a miss, nonetheless. And its guidance for the fourth quarter, $54 billion, was in line with the average Wall Street estimate. That sounds good until you think about the last two years of blowout earnings reports from NVDA, where gargantuan “beat and raises” became the norm. This was a beat, but not a raise. And when you’re the world’s biggest company, not to mention the poster child of the last two years of the AI trade, even meeting expectations can have investors treating your stock like it missed them. The stock sank 3% in after-hours trading. Given the stock’s weight in the market, any continued lag could potentially dismantle August’s gain. But let’s turn back to our Seasonality tool. Turns out, NVDA has a recent habit of falling right about now… with the slide lasting through September. 
In each of the last four years, NVDA has been negative from Aug. 29 (today) and the end of September. Looking out a bit further, though, we can see that this seasonal downturn is a buying opportunity:
NVDA has a bullish short-term seasonal pattern from Oct. 24 through Nov. 8. It’s been up each of the past 15 years and for an average gain of more than 8%. So if the next couple months see the shares dip, as our Seasonality tool suggests, that might be one worth buying. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily | 
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