As we move deeper into August, historical trends, technical indicators, and market valuations are all starting to flash red. The S&P 500 Index ($SPX) has been on a tear — up over 24% in the past four months — but smart investors know that momentum alone isn’t a reason to get comfortable.
In fact, if history is any guide, now is precisely the time to tighten up risk management.
Let’s start with what’s staring us in the face: seasonality. When analyzing S&P 500 performance in post-election years going back 75 years, we see a strong and consistent pattern. The index typically peaks in early August, with weakness continuing through September and bottoming near early October.
This isn’t isolated. Cboe Volatility Index ($VIX) seasonality shows a similar pattern — bottoming in late July and ramping up throughout August and September.
On average, August and September are two of the weakest-performing months for U.S. equities. While the start of August can appear deceptively strong, that strength tends to fade fast — and in post-election years, like the one we’re in now, that pattern is even more pronounced.
The warning signs aren’t just seasonal; they’re structural. Based on the Shiller PE ratio and the Buffett Indicator, the S&P 500 is now more expensive than nearly any time in modern history — second only to the 2000 dot-com Bubble.
Even traditionally defensive sectors like consumer staples are showing stretched valuations. And tech mega-caps, the heavyweights of this rally, are trading at earnings multiples that defy economic gravity.
Margin debt has also surged, a classic late-cycle signal. Deutsche Bank notes we’re seeing the fifth-fastest increase since 1998, a red flag eerily similar to 1999 and 2007.
The market may still be climbing, but under the surface, defensive positioning is increasing. The put/call ratio is on the rise, indicating that more traders are betting on downside moves. This isn’t typical during a bull run — unless smart money is quietly hedging.
