The kids are back in school. The NFL season is underway. The leaves are starting to turn. And there is an ever-so slight hint of fall in the air. All of which means one thing for stock market investors... The seasonal "fall swoon" period is upon us.

I've never been exactly sure why the S&P 500 tends to stumble during September and into either mid-October or November. Perhaps the trend can be attributed to year-end tax selling from the mutual fund industry (most funds have fiscal year-ends during this time). Perhaps the sloppy action seen in the fall is a result of markets taking a rest after the typical summer rally. Or maybe it's simply a time when analysts look ahead before committing additional capital.

The bottom line is traders love their historical analogs and as such, I'm not going to be surprised to see stocks find some sort of reason (any reason, really) to move sideways to down over the next month or so.

Exhibit A here is Ned Davis Research Group's Cycle Composite, which I have referenced a time or twenty over the years. To review briefly, the Cycle Composite is a mashup of all 1-, 4-, and 10-year cycles. For me, the key is that when the market is "in sync" with the historical cycles, the composite can provide a "scary good" projection of what may lay ahead for the markets.

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Copyright Ned Davis Research Group, All Rights Reserved

Then again, there are times, such as earlier this spring, when the market goes its own way and simply ignores history. Usually there is something that causes traders to ignore history and focus on the issue at hand. This time around, of course, it was the initiation of the tariff/trade wars. So, with economists everywhere telling us that the tariffs were going to plunge the U.S. into economic crisis, stocks took it on the chin for a while.

But as the joke goes, "economists were invented to make weathermen look good." And as everyone knows by now, the sky has not (yet?) fallen, and the tariffs could very well represent a new source of revenue for the good 'ol USofA. So, with the crisis seemingly averted, stocks got back in line with the historical cycles and have largely stuck to the script since mid-April.

But more recently, it appears that the market just might be going its own way again (note the orange dashed line on the chart relative to the projection in blue). As in, stocks are breaking out into what looks like a new uptrend when the cycle composite and the history of stock returns by month says the indices should be heading down. So, what gives?

While we can never know the reason why Ms. Market is doing what she's doing without a healthy dose of hindsight, I have found that examining the arguments from both teams can be helpful in trying to understand the current action in the markets.

The Bear Case: All About Jobs

Those seeing the market's glass as at least half-empty are currently pounding the table about the labor market. For what seems like an eternity, our furry friends in the bear camp have been telling us that the economy is on the brink of debacle. Lest we forget, the bears have been yammering on about an imminent recession for many (many) moons now.

Up until just recently, the dour calls haven't been proven out as the economy has been humming along nicely. But... Anyone watching the labor market knows that the data has taken a turn for the worse.

One need only to look at the last 2 Nonfarm Payroll reports to get the picture. Then last week the Negative Nancy crowd was treated to the BLS revisions (this is where the employees left at the Bureau of Labor Statistics finalize the numbers that to date had been estimates) which showed the economy actually created 911,000 less jobs than had been reported between April 2024 and March 2025. Oops.

Next, the latest NY Fed survey revealed that confidence in finding a job fell to 44.9%, the lowest since survey began in 2013.

And then just last week, concerns about labor-market softening continued to rise as initial claims for unemployment insurance jumped to the highest level in almost four years, while the four-week moving average rose for fifth straight week. Not a desired result.

Now toss in inflation stats heading the wrong direction; the courts saying the tariffs are illegal and must be refunded; negotiations with China, India and the like getting messy; escalations in the geopolitical situation (drones over Poland); concerns about the consumer (rising debt delinquencies and default rates); talk of a bubble in tech and extreme valuation levels; and well, it's easy to see why some traders may want to take some chips off the table.

The Bull Case: It's the Economy...

On the other sideline, the coaches and players are feeling pretty good about their field position. In short, our heroes in horns contend the secular growth theme in computing, which appears to be alive and well (see reports from Oracle, Nvidia, Palantir, Alphabet, Microsoft, and the like); an economy that is doing just fine, thank you; the resiliency of consumer spending; the outlook for earnings growth (consensus growth estimates for S&P EPS is currently ~17% for next year); the big-picture trend of inflation; and an oldie but a goody - a friendly Federal Reserve, all suggest that stocks continue to have room to roam to the upside.

My $0.02

As I mentioned at the outset, I'm not going to be surprised if stocks encounter some turbulence in the coming weeks. After all, if memory serves, we are entering what is historically the weakest 2-week period of the year. And of course, there is the potential for a "buy the rumor, sell the fact" event after the Fed cuts rates this week.

From a big-picture standpoint, I remain a card-carrying member of The Glass is at Least Half Full club. My view is that earnings growth remains robust and thus, my plan is to remain seated on the bull train for the foreseeable future (with my seatbelt fastened, of course!).

But I DO recognize that stock prices and the resulting valuations are currently VERY high as traders have leaned into the future. Therefore, I think it is important to recognize that expectations CAN and often do become excessive. As such, the earnings that are expected and are currently being priced in must - as in, absolutely MUST - show up. Otherwise, there could be a problem. As in a fairly large problem.

In closing, it is the ongoing argument between the bulls and bears that "makes a market." Our job is to decide which team has the better case and to do our best to stay in tune with the prevailing trend.

Publishing Note: This weekend is the U.S. edition of my youngest daughter's wedding reception. So, with family in town for the celebration, I will be putting away the keyboard for a week.

Thought for the Day:

Climb the mountain so you can see the world, not so the world can see you. -David McCullough

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research, a Registered Investment Advisor

Disclosures

At the time of publication, Mr. Moenning held long positions in the following securities mentioned: ORCL, NVDA, PLTR, GOOGL, MSFT - Note that positions may change at any time.

NOT INDIVIDUAL INVESTMENT ADVICE. IMPORTANT FURTHER DISCLOSURES