September Curse Repeating? Analysts Warn of Downside Risks in U.S. Stocks

During the past month of August, the performance of U.S. stocks turned lackluster, as the $S&P 500 Index(.SPX.US)$ ended its five-month winning streak by closing down 1.77%. Historical trends reveal that September is typically a weak month for the U.S. stock market, leading some analysts to warn of the potential arrival of the so-called "September Curse." They also recommend some investment strategies to mitigate risks during this period.

The $S&P 500 Index(.SPX.US)$ has rallied 17.61% this year, with companies within the index trading at approximately 19 times their next 12 months' estimated earnings. According to FactSet, this multiple is higher than the start-of-year figure of roughly 16.8x and the 10-year average of 17.7x. Furthermore, JPMorgan Strategists warned that U.S. stocks appear particularly expensive given the rising real interest rates as equity valuations have diverged from the higher real yields.

According to Morningstar's team of equity analysts, despite unfavorable macroeconomic conditions and near-term uncertainty, there are still ample investment opportunities in U.S. stocks, particularly in consumer cyclical stocks. As of August 24th, Morningstar's U.S. Consumer Cyclical Index had risen by 28.1% year-to-date, outperforming the Morningstar U.S. Market Index by 11.7%. Several fundamentally strong consumer stocks, including $Nike(NKE.US)$ , $Harley-Davidson(HOG.US)$ , $Polaris(PII.US)$ , $Etsy Inc(ETSY.US)$ , and others, are currently trading at very low valuations, indicating significant upside potential for these stocks.