Fall Storm: Why a Market Correction May Be Looming

September Market Seasonality

The month of September is historically one of the worst times to be a bull. Though the Nasdaq 100 Index ETF (QQQ) is up 1.81% month-to-date and the current bull market has several bullish catalysts, like the AI revolution, an upcoming interest rate cut from the Federal Reserve, robust GDP numbers, and tame inflation, investors should still beware. Performance from the past decade shows that September seasonal trends can supersede fundamental and economic strength and lead to pullbacks. Over the past decade, the tech-heavy QQQ index has been lower in September in seven instances. Meanwhile, QQQ has averaged a meager 2.57% in the years it gained while averaging losses of -4.42% in the seven years it fell in September. Additionally, while QQQ has displayed few signs of slowing thus far in Septembe investors need to note that most of the weakness historically occurs in the back half of the month.

Fed and AI Mania: Sell the News?

Market psychology means that news is often priced in ahead of time. When a stock or market runs up into a highly likely event, investors usually use the liquidity from the actual event to “sell the news.” The Federal Reserve’s rate cut is one of the most anticipated events thus far in 2025. Will investors use the event to sell the news?

Additionally, several AI-related stocks like Arm Holdings (ARM), Astera Labs (ALAB), CoreWeave (CRWV), and Bloom Energy (BE) have gone on tremendous runs recently. In fact, Oracle (ORCL) shares are up nearly 40% this week and gained $244 billion in market cap on Wednesday alone.

While Oracle’s guidance was spectacular, some profit-taking at this juncture would make perfect sense.

Tariff Uncertainty Looms Ahead of Supreme Court Ruling

Markets hate uncertainty, and a significant question mark for investors will be what happens to President Donald Trump’s most significant economic policy – tariffs. The blanket tariffs imposed globally by the Trump Administration are by far the most prominent Wall Street story of 2025 thus far. Initially, stocks tanked after President Trump’s ‘Liberation Day’ tariff announcement. Investors were consumed about the dollar losing its reserve status, a recession, inflation, and potential stagflation. Though the sell-off sparked short-term fear on Wall Street, markets soon adjusted as Trump lowered his initial tariff levels, the United States struck deals with key global trading partners, GDP came in strong, and inflation remained tame. Though markets are now comfortable with Trump’s tariffs, Trump’s political rivals are trying to force them to end.

Usually, tariff legislation must be passed by Congress. However, President Trump and his economic team used the International Emergency Economic Powers Act (IEEPA) to skirt this rule, citing the fentanyl crisis and massive trade imbalances. Recently, a lower court has ruled tariffs illegal. However, the case is being fast-tracked to the Supreme Court, and oral arguments will begin in November. Should the Trump Administration lose the case, not only will tariffs need to be removed, the hundreds of billions in tariff revenue collected will need to be returned. Until a decision is made, the sheer uncertainty is likely to hang over US equity markets.

Bottom Line

Given the historical September volatility, the “sell the news” psychology surrounding the interest rate cut and AI hype, and the ongoing legal uncertainty of tariffs, an end-of-month correction may loom.

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This article originally published on Zacks Investment Research (zacks.com).

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