August and September Are Here — Wall Street’s Worst Months. But Buy the Dip, Say Strategists

TradingKey - After a record-breaking July, Wall Street is sounding the alarm: August and September are coming — historically the two weakest months for U.S. stocks. But despite the seasonal headwinds, major banks still advise investors to stay the course and buy the dip, citing strong AI momentum and resilient corporate earnings.

As of August 4, the S&P 500 is up 7.62% year-to-date, with a 13% gain over the past three months. The Nasdaq Composite has risen 9.02% YTD, surging 19% in the same period.

SPDR S&P 500 ETF (SPY), Source: TradingKey

The Seasonal Warning Signs

Goldman Sachs highlighted several unusual market dynamics in recent months:

• A surge in meme stocks — the GSXURFAV basket of retail-favorite stocks rose 50% in three months
• A violent short squeeze — the GSCBMSAL basket of heavily shorted stocks jumped 60%
• Soaring speculative trading indicators, now near historical highs

With the market at elevated levels, traders are increasing downside protection for what history shows are the S&P 500’s worst-performing months.

According to Bloomberg, the S&P 500 has averaged a 0.7% decline in both August and September — compared to an average 1.1% gain in all other months.

Scott Rubner, equity strategist at Goldman Sachs, said that from now through mid-September, seasonality is no longer your friend. 

Bearish Signals for Q3

Morgan Stanley strategist Mike Wilson warns that Q3 could see a pullback of up to 10%, driven by:

• Tariff pressures on consumer and corporate balance sheets
• A slowdown in earnings revision breadth
• Rising long-term Treasury yields
• Tighter global liquidity due to a less-dovish Fed

Evercore ISI analysts suggest the correction could be even deeper — up to 15%.

But the Long-Term Outlook Remains Bullish

Despite the near-term risks, Wall Street remains constructive on the long-term equity outlook.

Morgan Stanley advises investors to buy the dip, as:

• The Fed is nearing a rate-cutting cycle
• Q2 earnings season has exceeded expectations
• AI adoption is accelerating across enterprises
• Weaker dollar supports multinational profits
• Trump’s tax cuts provide fiscal tailwinds

Goldman Sachs notes that while tariffs may pressure revenue growth in the second half, the profitability of mega-cap tech companies — particularly in AI and cloud — remains strong.

Combined with pro-growth fiscal policy extending into 2026, these factors should continue to support equity valuations.