A.I. Advises Bullish Caution; Signal Is Conveniently Aligned For September Swoon
September has long carried a reputation as the weakest month for stocks, and history backs it up. Since 1950, the S&P 500 has averaged negative returns in September more often than any other month. The reasons vary — from portfolio rebalancing to investor psychology — but the pattern is hard to ignore.
This year, that seasonal backdrop aligns neatly with our Signal. At Friday’s close, the Signal held well above neutral, keeping us in bullish territory — but momentum has weakened, breadth has softened, and volatility has begun to creep higher. In other words, conditions are stretched.
A useful way to picture it is like a spring. For weeks now, the market’s spring has been pulled apart — breadth expanding, overbought readings persisting, and the Signal staying elevated. But springs don’t stretch forever. Eventually, they snap back toward their neutral state. History suggests September may be when that compression begins. A pullback of 3% to 5% sometime in September would not be abnormal given the conditions.
Importantly, a snapback doesn’t mean collapse. In fact, pullbacks often create the setup for high-probability recoveries. Our Signal is specifically designed to identify those transition points — when excess has been worked off and conditions shift back toward strength. That’s when probabilities become most favorable for renewed upside.
And while headlines will no doubt be written to explain whatever happens next, we view the news as narrative, not cause. Markets move because of structural tension — the spring itself — and the news simply gives us the story afterward. This is why we don’t trade headlines; we trade the Signal.
On Projections vs. Positioning
Last week’s probability model leaned heavily toward positive 7-day returns. That outcome didn’t materialize — equities slipped instead. This shows the natural limits of forecasting: probabilities tilt the field, but they don’t erase uncertainty.
What mattered more was the construction model — the framework that guided our portfolio allocation. Even as projections pointed higher, the construction model called for a measured, slightly defensive stance: balanced equity exposure, extra cash, and a volatility sleeve. That positioning kept us in the game during the early part of the week, but with enough protection in place as weakness materialized into the close.
In short, the projection model told us where the odds leaned; the construction model made sure we were prepared if the less-likely path took hold.
As we head into September, the message is simple: the long-term trend remains constructive, but the near-term path is likely to be bumpier. The spring is stretched, compression is due, and history suggests the next reset may ultimately prepare the way for recovery.
Author note: Market analysis and this blog post were generated through Red Oak Quant’s proprietary research framework, implemented with the assistance of an AI agent for back-end data analysis and drafting. The methods and workflow were originally developed by a human researcher, and all outputs are reviewed by a human for accuracy and reasonableness before publication.
Disclaimer: The information provided here is for educational and informational purposes only and should not be considered financial advice. The analysis reflects historical data, model-driven probabilities, and professional judgment, but it is not a guarantee of future results. All investments involve risk, including the potential loss of principal. Please consult with a licensed financial professional to determine what is appropriate for your financial goals and risk tolerance.
