The S&P 500 is stepping into what’s been its most difficult part of the calendar, just after clocking a 28% surge over the last 75 trading days, the biggest rally since its pandemic rebound in 2020.
But now it’s August, and Wall Street knows this is where things usually get shaky. Based on Bloomberg data, the index has averaged a 0.7% drop in both August and September over the past 30 years. That stands in contrast to the 1.1% average monthly gains in the rest of the year.
This downturn pattern shows up every year around this time when institutional investors return from summer, reassess their portfolios, and start prepping for the next fiscal cycle.
This seasonal slowdown is now colliding with some big events on the horizon. On Wednesday, the Federal Reserve is expected to give a major update. Everyone’s watching Jerome Powell to see if he hints at interest rate cuts or delays any moves again.
The market wants clarity, but as Ed Clissold, chief US strategist at Ned Davis Research, put it : “If Powell signals no rate cuts are coming for the foreseeable future, traders will be disappointed, and it may fuel a brief selloff.” He also warned that any bad economic news right now could easily drag the stock market down.
Money managers reposition as Fed meeting nears
Even though the S&P 500 just came off a strong run, there’s still nervousness about how long it can hold. JPMorgan Asset Management said this is the sharpest rally in a similar stretch since the post-crash period in 2020.
The gains were largely helped by a cooling of President Donald Trump’s tariff agenda , which had earlier sent markets spinning. But the break might not last. Any new pressure from tariffs, weak earnings, or soft economic data could flip the current mood in seconds.
August and September are when mutual funds start clearing losses to reduce capital gains taxes, corporations revise next year’s budgets, and retail investors tend to play it safer. Deutsche Bank says equity exposure is slightly overweight but still leaves room for fresh buying.
A survey by the National Association of Active Investment Managers found that US stock allocations were cut to levels last seen in late May, showing some caution.
At the same time, commodity trading advisers, who usually follow price trends, are holding long equity positions in the 94th percentile. That’s the highest since January 2020. But Kevin Murphy at Deutsche Bank pointed out that while this suggests confidence, it also raises the risk of quick selloffs if the tide turns.
Long-short hedge funds see returns as volatility boosts stock picking
Away from index moves, hedge funds are seeing a different kind of year. Long-short equity funds, which bet on winners and losers, are bringing in new investor capital after nearly a decade of outflows. Hedge Fund Research reported $10 billion in inflows during the first six months of 2025. That comes after $120 billion in redemptions since 2016.
This new momentum follows strong gains from top names in the space. Chris Hohn’s TCI, John Armitage’s Egerton, and Kintbury Capital all posted double-digit returns in the first half of the year. Investors, looking to move beyond plain index exposure, were drawn to these strategies during recent market swings caused by Trump’s “liberation day” tariff push in April.
The S&P 500 drop earlier this year gave active managers more opportunities. The long-short strategy returned 3.5% in June and is up 9.2% for the year, based on PivotalPath data. Some funds outperformed even that.
In the US, Lee Ainslie’s Maverick gained 14%, and Daniel Sundheim’s D1 Capital Partners topped 20%. Mala Gaonkar’s tech-heavy SurgoCap Partners rose 17% after gaining 33% in 2024. Her firm, which started in 2023 with $1.8 billion, now manages $5 billion.
These funds say they’re finally benefiting from higher rates. For years, cheap money from central banks meant stocks moved together, making it hard to pick winners or short anything with conviction. That’s changed. With more scrutiny on earnings and wider market performance, stock pickers have more room to operate.
So far in 2025, the equal-weighted S&P 500 has kept pace with the standard version of the index, which is up 8% year-to-date. That’s unusual, considering the past dominance of large US tech firms. European markets have even outperformed the S&P 500 in some cases, especially with defense stocks like Rheinmetall and BAE bouncing back.
KEY Difference Wire : the secret tool crypto projects use to get guaranteed media coverage
