The epic surge collides with the curse! The S&P 500 is about to face the "weakest two months"

According to the Zhitong Finance APP, after setting the strongest consecutive rise record since 2020, the S&P 500 index is about to enter the traditionally "most difficult period of the year." Compilation data shows that over the past thirty years, the benchmark index has performed the worst in August and September, with an average decline of 0.7%, while other months have an average increase of 1.1%. Analysts believe that this seasonal characteristic partly stems from fund managers typically reassessing their portfolios during this period.

Currently, Wall Street is already filled with the atmosphere of "the stock market's record rally may need a breather"—valuations have become overly high, and several key events are approaching, which may exacerbate this sentiment. The Federal Reserve's interest rate decision on Wednesday local time will be the first test—investors are eager to see whether Chairman Powell will pave the way for interest rate cuts this year or suggest that more time is needed to assess the impact of tariff policies on the economy.

"If Powell hints that there will be no interest rate cuts in the near term, traders will feel disappointed, which could trigger a brief sell-off," said Ed Clissold, Chief U.S. Strategist at Ned Davis Research. "Any negative news could lead to a market correction."

According to data compiled by JP Morgan Asset Management, the S&P 500 has astonishingly rebounded 28% over the 75 trading days ending last Friday, marking the largest increase for the index in the same period since the market recovered from the severe downturn during the peak of the pandemic in 2020.

This rally has prompted investors to return to the market from a wait-and-see stance, with the pause in Trump's tariff offensive being one of the driving factors behind it.

Sensitive Timing Holds Variables

However, during the sensitive window of August to September, any news regarding tariffs, economic data, or corporate earnings could trigger a stock market sell-off.

During this period, investors returning from summer vacations often reassess their holdings and shift towards defensive positions; companies begin to formulate budgets for the coming year and consider tightening expenditures; mutual funds may sell off losing positions to reduce the scale of capital gains distributions.

Of course, history is not a prelude to the future. Compilation data shows that in the past ten years, August has seen positive returns in five of those years.

Additionally, Deutsche Bank's analysis of rule-based and discretionary strategies shows that although traders' stock exposure continues to rise, it remains only moderately overweight. A survey by the U.S. Active Investment Managers Association indicates that fund managers have reduced their exposure to U.S. stocks to the lowest level since the end of May, clearing the way for investors to buy stocks in the coming weeks Chris Murphy, co-head of derivatives strategy at Susquehanna, stated: "This rally does need a pause or a pullback, but any decline may be shallow and short-lived. The stock market may break some seasonal weakness trends."

In fact, Jeffrey Hirsch, editor of the Stock Trader's Almanac, believes there is still room for further upside in the rally, although the pace may be more moderate.

"What I am more concerned about is that this rally will continue to push forward, and people will miss the opportunity—because once we get past all the events of this week, if things are not as concerning as feared, it could be a positive for the stock market in the short term," Hirsch said.

Risk Warning Signals

Nevertheless, data from Deutsche Bank shows that commodity trading advisors (CTAs), who typically buy when indices rise and sell when they fall, currently hold stock long positions at the 94th percentile— the highest level since January 2020. Murphy pointed out that this indicates confidence in the stock market, but also means that if the market environment changes, the risk of a sharp reversal may increase.

Mark Newton, head of technical strategy at Fundstrat Global Advisors, believes seasonal patterns indicate that U.S. stocks often peak in mid-August. Any surge in bond yields (which could raise corporate borrowing costs) would also cast a shadow over the outlook.

"The warning signals I am watching include: a significant rise in yields, a shift towards more defensive positions, and weakening market breadth, but none of these conditions have emerged yet," Newton added