September Outlook: Best Case Bullish Scenario on Track Save Minor Pullback By: Jeffrey A. Hirsch & Christopher Mistal | August 28, 2025 | Email | Print

Stanley Kubrick’s 1964 movie masterpiece, Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb, keeps coming to mind. Not the plot or storyline but the subtitle. To quip: Bearish Seasonality or: How I Learned to Stop Worrying and Love the Bull. Our 2025 forecast from the outset was rather bullish. Seasonally weak August logging a 2.6% gain for the S&P with one trading day left, 2025 tracking the upper end of our seasonal and 4-year election cycle patterns and the list of market risks growing thin puts our best case 2025 forecast scenario of 12-20% firmly in play.

 

We are also reminded of the wise words of the late Edson Gould: “If the market does not rally, as it should during bullish seasonal periods, it is a sign that other forces are stronger and that when the seasonal period ends those forces will really have their say.” Conversely when bearish seasonality doesn’t transpire it is a bullish indication that more powerful forces are at play. Despite the tariff tumult earlier this year the AI Super Boom has proven to be quite powerful as evidenced by the resilient recent economic growth and employment numbers as well as the face-ripping rally since April.

 

Remember what we wrote in the 2025 Outlook, on pages 10-11 of the 2025 Stock Trader’s Almanac, and in the Best-Case Scenario in our 2025 Forecast last December. Post-election years are the best year of the 4-year cycle since 1985. S&P averages a gain of 18.1% in post-election years since 1985, up 9, down 1 (2001). So, with all the bullish market action over the past four months and the market continuing to log new all-time highs (except for Russell 2000 though its on the move lately) we have added post-election years since 1985 to our updated S&P 500 Post-Election Seasonal Chart Below. 

 

 

You can see how 2025 has started to track the post-election years since 1985 pattern. All these patterns are at or near their annual highs at the end of December, exhibit a Q4 rally and show a minor pullback in the August-October timeframe of about 1-5%. With the AI Super Boom in full force, we could easily see a stronger than average yearend rally that pushes S&P 500 up to 20% or more for the year in line with our best-case scenario. 

 

However, there is still the potential for a September/October surprise pullback. But considering all the bullish indications and momentum and the robust macro backdrop it would require some unexpected catalyst to trigger even a mild selloff. 

 

The most obvious thing to us would be if the Fed does not cut interest rates at the September meeting. Q2 GDP being revised up to 3.3% today, weekly jobless claims falling and core inflation on the rise might provide cover for the Fed to rebuff the White House’s demands to lower rates. PCE tomorrow and Unemployment, PPI and CPI in early September should provide more clarity. The rise in the 30-Year Treasury and some AI Tech miss or surprise like Deep Seek back in January are also potential catalysts for a pullback.

 

 

With one day left in August S&P is up 2.6% month-to-date. Save a big bearish surprise tomorrow, this will make it four months in row of solid gains. Considering August’s notorious seasonal weakness history and July’s outperformance we tabulated all the years since 1949 when S&P was up more than 2% for each month. Of the previous eleven occurrences S&P was down eight times with an average loss of -1.0% in September and October was down seven of eleven times with an average loss of -2.9%. However, there are some notable selloffs in 1978, 1987, 2018, 2020 and 2021. 

 

 

September has been the worst month of the year. And in post-election years DJIA and S&P 500 have declined in 10 of the last 18 Septembers. And then there’s Octoberphobia. So, with the history of volatility toward the end of Q3 and into October there is the potential for some late summer/early fall selloff. We did experience the usual post-election year Q1 weakness a little later with the tariff tumble low in April, so perhaps the usual Q3 seasonal weakness with arrive a tad later. In any event we expect any pullback to be short-lived and shallow and we reaffirm that our 2025 Best-Case Scenario of 12-20% full-year gains is firmly in play.

 

 

It took DJIA over eight months, and some help from Fed Chair Powell, but it finally broke out to a new all-time closing high (1) on August 25, 2025, and again today. DJIA’s old all-time closing high was set on December 4, 2024. Whether or not this signals the “all-clear” ahead remains to be seen with DJIA doing some consolidating earlier this week. DJIA is on course to finish historically tepid August with a respectable gain, but September has also been a challenging month.

 

DJIA’s gains over the last three weeks have turned both the faster and slower moving MACDs positive (2). However, the faster moving MACD Buy appears to be responding to the slowing in DJIA’s upward momentum this week and is trending back toward a sell signal crossover. Successive new all-time closing highs will be needed to stave off any MACD sell crossovers. This is something DJIA has struggled with.

 

 

If DJIA can finish this week with a gain, it will be the fourth straight week (3) and a feat it has not accomplished since last October. S&P 500 (4) is also on the same path to four weekly gains in a row which has also not been achieved since last October. NASDAQ’s decline (5) during the week ending August 22, negated its attempt. Historically, weekly winning streaks have all ended. The current streak by DJIA and SP 500 will also end. We suspect any subsequent weakness will be brief as the market has proven resilient this year. 

 

Weekly market breadth over the last three weeks (6) has been solidly bullish with Weekly Advancers outnumbering Weekly Decliners by around 2-to-1 or better. With Russell 2000 up over 7% already in August, small-cap gains are likely enhancing the positive weekly breadth numbers. Small-cap outperformance ahead of and around Labor Day is visible on page 114 of the 2025 Almanac. But the small-cap advantage has tended to fade around mid-September.

 

One potential area of concern is the lack of New 52-week Highs (7). Despite recent strength and new all-time closing highs, New 52-week Highs have not eclipsed their 2025 peak of 273 set in the final full week of trading in July. Yes, the major indexes could continue to slowly grind higher but participation in the rally appears to be waning. Absent a breakout in New 52-week Highs, a pullback and/or consolidation is not out of the question.

 

The 30-year Treasury bond yield did pullback from 5% but that pullback could be over as it has begun slowly trending higher over the last two weeks (8). We still view 5% as a key level for the 30-year bond. Any brisk move above that level could test the stock market’s resiliency.