September Effect: Potential Safe Haven Stocks Amid Market Volatility

Moomoo News Global joined discussion · Sep 10 07:49

Since 1928, the $S&P 500 Index (.SPX.US)$ has averaged a 1.1% decline in September. This year, with an election looming and the prospect of a rate-cutting cycle, investor sentiment is more nervous.

The "September effect" appears to be resurfacing, with the S&P 500 down 3.14% month-to-date as of Monday's close, now in the second week of September.

Last week, we published "Wall Street is Bracing for September Curse Again. What's New and How to Tackle It," outlining three strategies for investors: 1) betting on increased volatility, 2) investing in defensive high-dividend sectors like utilities and consumer staples, and 3) holding cash and waiting to buy quality stocks in the historically strong Q4.

Over the past five years, the S&P 500 has averaged a 4.2% decline in September. However, nine stocks have consistently outperformed the S&P 500 in September, each delivering an average return of over 1%. These stocks may serve as potential safe havens amid market turbulence.

September Effect: Potential Safe Haven Stocks Amid Market Volatility

Leading the pack is apparel retailer $Abercrombie & Fitch (ANF.US)$, with an average September return of 6.7%. The stock has surged 285% in the past year and is up 51% year-to-date.

Abercrombie posted robust earnings in late August, with same-store sales up 18% and earnings per share soaring 127% year-over-year. The company also significantly raised its full-year sales forecast and operating margin, though management cautioned about an "increasingly uncertain environment" and offered conservative quarterly guidance. Despite strong results, the stock fell 17% post-earnings, currently trading at $133, a 32% retreat from its May peak of $196.

Wall Street remains optimistic about Abercrombie. JPMorgan added the stock to its Analyst Focus List post-earnings, maintaining an Overweight rating and $194 price target. Citi upgraded the stock from Neutral to Buy, keeping a $190 target. Citi sees 10 reasons why "the Abercrombie story is not over," highlighting the recent selloff as an opportunity to own a "unique asset." The bank cites Abercrombie's remarkable turnaround, robust same-store sales, and conservative second-half guidance.

Second on the list is $Dr. Reddy's Laboratories (RDY.US)$, with an average September return of 5.1%. The generic drugmaker hit an all-time high of $84.5 in early August.

Ranking third is logistics and transportation company $Ryder System (R.US)$ , with an average September return of 4.0%. Ryder reached a record high of $145.6 in late August. The company has repurchased shares for 19 consecutive years and offers a high dividend yield.

Notably, four of the nine outperforming stocks are financials: $Fifth Third Bancorp (FITB.US)$ , $Reinsurance Group of America (RGA.US)$, $PNC Financial Services (PNC.US)$, and $Gamelancer Gaming Corp (WDR.CA)$.

Several factors may contribute to the strong performance of financial stocks:

1. Stable dividends: Financials typically offer steady dividend yields, providing income for investors during market volatility.

2. Low volatility: With stable business operations and revenue, financial stocks can exhibit defensive characteristics during economic slowdowns, making them less volatile compared to cyclical sectors.

3. Reasonable valuations: During market downturns, financial stocks may become more attractively valued, appealing to value investors. Currently, the financial sector's valuation stands at 16 times earnings, the second-lowest among U.S. equity sectors.

Source: MacroMicro

Financial stocks have shown robust performance this year, with the S&P Financial Select Sector Index up 19% year-to-date.

According to The Wall Street Journal, Shaniel Ramjee, co-head of the multi-asset team at Pictet Asset Management's London office, said his team has been steadily buying U.S. financial stocks in recent weeks, anticipating a rate cut by the Federal Reserve.

"We think financials are one of the sectors that will benefit from a steepening yield curve, more help from lower rates for consumers, and more activity in the economy if rates are lower," he said.

Year-to-date, nine stocks have shown strong performance, with all but $Sociedad Quimica Y Minera De Chile (SQM.US)$ posting double-digit gains.

However, since September, these stocks have recorded negative returns, with only $PNC Financial Services (PNC.US)$ , $Houlihan Lokey (HLI.US)$ , and $Fifth Third Bancorp (FITB.US)$ outperforming the S&P 500. The question remains whether they can reverse the trend in the remaining days of the month.

Mooers, what's your take?