The worst month in the history of the US stock market has arrived! UBS sounds the seasonal alarm for September
UBS warns that despite the absence of signs of economic slowdown in the data, high positions and reliance on Federal Reserve policies make the market vulnerable, and investors should be wary of systemic risks. With the arrival of September, the S&P 500 faces a turning point, as historically, September is the most negative seasonal month. The report points out that the market is at historical highs, and seasonal factors may increase the probability of a pullback, especially as AI-leading stocks may "rest," with the risks of non-farm payroll data or CPI data falling short of expectations increasing. UBS recommends adopting a cautious defensive strategy
According to Zhitong Finance APP, UBS recently stated that the strong rise in the U.S. stock market in August 2025 is primarily driven by EPS revisions. However, with September approaching—the historically most negative seasonal month for the S&P 500—the market is facing a turning point. The bank warned that despite no signs of economic data slowing down, high positions and dependence on Federal Reserve policy make the market vulnerable, and investors need to be wary of systemic risks.
The strongest wave of EPS revisions since the COVID-19 pandemic has not only boosted the S&P 500 and Nasdaq 100 indices but has also significantly impacted assets with imbalanced positions.
The cyclical growth impulse and expectations of Federal Reserve policy have further strengthened market optimism. UBS's report shows that the cyclical index (vs. defensive index) is close to historical highs, reflecting the market's pricing of economic growth impulses. Investor confidence stems from the imminent implementation of the "Great Beautiful Act" and the past weakness in non-farm employment data.
Economic indicators have not shown substantial signs of growth slowing down. Additionally, Federal Reserve Chairman Jerome Powell's dovish signals regarding a rate cut in September have become a key driver, leading investors to "romanticize" a dovish Federal Reserve in the context of active growth, encouraging the maintenance of risk positions. The report noted that attempts to short risk assets have repeatedly failed recently, highlighting the strength of the current environment.
Risks are Accumulating
UBS emphasizes the negative seasonal risks in September, which is the most unfavorable month in SPX history. The market is already at historical highs, but seasonal factors typically intensify after mid-September, coinciding with the FOMC meeting, increasing the probability of a pullback.
Specific risks include: AI-leading stocks (such as Nvidia) may "rest" after earnings reports, leading to a lack of market momentum; the risk of non-farm employment data or CPI data falling short of expectations (the bank's economic team expects September non-farm employment to be 70,000, below the consensus of 75,000), any reading that questions growth could trigger a significant decline in U.S. stocks; position levels have reached their highest point since April, especially among systemic funds, which could trigger systemic sell-offs.
UBS's early warning signals no longer show bullish signals, indicating that downside risks are accumulating, with models predicting an increased probability of the S&P 500 index falling more than 5% in the next month.
Hedging Strategies
UBS recommends adopting a cautious defensive strategy. Given that price action at the end of August is affected by low liquidity (many people are on vacation), the bank suggests reducing risk exposure before the non-farm data. Specific strategies include: buying put options on the Russell 2000 index (IWM.US) as protection against Friday's data event; buying call options on gold ETFs for October; and going long on the software sector rather than the semiconductor sector due to Nvidia's weakness
