The earnings feast of U.S. stocks encounters the "September Curse"! Wall Street sounds the alarm: historical patterns suggest a potential drop of 7%.

After the S&P 500 Index first broke through the historic milestone of 7,800 points on August 13, Wall Street's technical strategists are intensively issuing warnings: U.S. equities are entering the most dangerous seasonal window of the year with historically high levels, extremely low volatility, and excessive optimism. The Philadelphia Semiconductor Index remains deep in a bear market, down over 20% from its June peak, while JPMorgan's head of technical strategy bluntly stated, "the adjustment has not really ended," and BTIG's chief technical analyst warned investors "not to be deceived by the perfect atmosphere." Since 1990, the S&P 500 Equal Weight Index has averaged a decline of 6% from mid-August to mid-October in midterm election years, while the S&P 500 Index has averaged a drop of about 5%. Profit "Feast": S&P 500 EPS Soars 32%, Wall Street Calls for 8,000 Points The recently concluded second-quarter earnings season has delivered a record-breaking report card. The S&P 500 constituents' EPS growth in the second quarter reached 32% year-on-year, continuing the strong momentum of 30% in the first quarter. More than 90% of the constituents have reported earnings, and the overall performance in the first half of the year is expected to be the best since 2021. The net profit margin has risen from 14% to nearly 16%. Wall Street strategists are raising target prices at an unprecedented pace. JPMorgan has revised its 2026 S&P 500 EPS forecast to $365 (up 35%) and increased its year-end target price from 7,800 to 8,000 points. Goldman Sachs expects the 2026 EPS to reach $340 (+24%), with nearly half the growth directly attributable to beneficiaries of AI infrastructure. Yardeni Research President Ed Yardeni has raised his target price from 7,700 points to 8,250 points, with EPS expectations increased from $310 to $330. Citigroup has also raised its 2026 EPS forecast from $350 to $365, maintaining a year-end target of 8,100 points. The core logic driving profit expansion is shifting from valuation expansion to earnings revisions and AI commercialization. Major tech companies like Google, Amazon, and Microsoft are seeing strong growth in their cloud businesses, with expanding order backlogs and improved visibility of operating cash flows. Among S&P 500 constituents that have reported earnings, 78% exceeded earnings expectations, and 73% surpassed revenue estimates. Technical Signals Turn Red: S&P 500 Approaches Key Resistance, Semiconductors Deep in Bear Market However, the impressive earnings have not been able to smooth over the structural cracks within the market. In a report released on August 24, JPMorgan technical strategist Jason Hunter warned that although U.S. stocks remain near historic highs, multiple risk signals have appeared within the market. The S&P 500 Index recently hit a historic high of 7,816 points but remains below the crucial resistance area of 7,909 to 7,935 points. Hunter pointed out that the index is showing signs of slowing momentum near long-term channel resistance and noted a recent shift in market leadership, with existing AI-related leaders exhibiting fragile technical patterns. The semiconductor sector is in an especially dire situation. The Philadelphia Semiconductor Index (SOX) has pulled back more than 21% from its peak of 14,655 points in early July, meeting the definition of a "technical bear market." As of the close on August 28, SOX plummeted 412.51 points (a decline of 3.47%), closing at 11,469.66 points. JPMorgan warned that the resistance area where the semiconductor index currently sits is the dividing line between a short-term "dead cat bounce" and the resumption of a multiyear uptrend. If it continues to trade below this area after Labor Day, the semiconductor index may face new, strong selling pressure throughout the fall. BTIG's chief technical strategist Jonathan Krinsky further noted that there have been 57 trading days in 2026 where price movements were contrary to market breadth, tying for the highest in nearly three decades. Thus far in 2023, there has not been a single "capitulation day" with down volume exceeding 80%, indicating a persistent lack of a clean-out, with systemic adjustment pressure quietly building. September "Hex": Historical Patterns Indicate Midterm Elections Years Experience 7% Corrections from August to October Historical seasonal data provides a more solid foundation for the current market warnings. Since 1928, the average return for the S&P 500 Index in September is about -1.2%, making it the only calendar month with a long-term average return that is negative, with approximately 56% of the years experiencing declines. In down years, the average correction reaches 7.35%. This seasonal weakness is even more pronounced in mid-term election yearssince 1974, the median return for the S&P 500 Index from August 1 to Election Day in November during all midterm years has been 0%. BTIG's data further reveals a more severe pattern during midterm election years: since 1990, the equal-weighted S&P 500 Index has dropped at least 7% during the August to October period of each midterm election year, except for 2006. The index typically peaks around August 18 and then enters a tough downward period until mid-October. Data shows that in midterm election years, the equal-weighted S&P 500 Index averages a drop of 6% from August 18 to October 11, while the standard S&P 500 averages about a 5% decline, the Nasdaq Composite averages a drop of 7%, and the Russell 2000 averages an 8% drop. In non-midterm election years, these three indices' average returns during the same period are generally flat. BTIG specifically points out that midterm elections themselves do not always trigger volatility directly; rather, often it is an unforeseen external event that precipitates the declinesuch as Kuwait's invasion in 1990, the long-term capital management crisis in 1998, and the Ebola outbreak in 2014. This implies that the potential risks currently facing the market are equally difficult to predict. Krinsky's warnings are particularly direct: "Broadening has occurred, and the atmosphere is immaculate. Unfortunately, history tells us that as we enter the worst period on the midterm election year calendar (from August 18 to October 11), we should not become too comfortable." Sentiment and Volatility: Market Complacency Reaches Extreme Levels Ned Davis Research's composite sentiment and trader sentiment indicators show that the market is in an "overly optimistic" state. Analysts at the firm noted that when both indicators are in this range, the market tends to perform weakly. Moreover, the upcoming midterm elections in November add another layer of complexity. Analyst London Stockton wrote in a report on August 26, "This suggests that before some of the optimism fades or the election concludes, the market may experience volatility." The 10-day moving average of the CBOE put/call ratio has dropped to 0.82, a low range compared to the past few years, indicating that market participants are nearly not buying protection for potential pullbacks. At the same time, the VIX fear index has lingered near its annual low. BTIG represents the historical high market, the VIX at an annual low, and near-complete lack of protective demand as interconnected elements, believing they collectively form the complete picture of the current high market complacency. Krinsky further points out that there has not been a single trading day this year when the number of declining stocks accounted for over 80% of the NYSE's trading volume. Historically, there are an average of 21 such trading days a year, with no year in the last thirty having fewer than five. Meanwhile, the VIX has dropped to near its annual lowthis "perfect calm" is precisely the most dangerous signal for the market. Equal Weighted Index Not Immune to "Hex": The Seemingly Safe Haven Hides Risks The equal-weighted S&P 500 Index (SPW) has recorded a year-to-date increase of about 16%, outperforming the standard S&P 500's roughly 12% gain. Krinsky stated that the equal-weighted index is currently in a "very good situation." However, he cautioned that investors should not be overly optimistic, as historical experience indicates that the SPW may have just begun to experience its worst times in a midterm election yearaveraging a decline of about 6% from August 18 to October 11. Krinsky noted that the S&P 500 Index has actually been "static for two months," with the market merely reflecting a "game of musical chairs" between different sectors. If the money rotation does not return to technology and AI sectors, he expects further declines in the market: "What we are seeing is simply capital shifting from one industry to another, like wobbling in water with no destination," which is inadequate to drive the market higher. Strategic Insights: Trend Following and Defensive Positioning Facing the intertwined complexity of strong profits and multiple risks, Wall Street strategists have issued cautious advice. JPMorgan's Hunter advocates for "going with the trend"employing a trend-following stop-loss strategy rather than aggressively avoiding risk. "If we've learned anything from the past year and a half to two years, it's that trying to get in ahead of a recession is not a wise move." The firm recommends that investors consider moderately reducing their stock positions before the beginning of September. BTIG's Krinsky suggests establishing defensive positions in the healthcare sectorthis sector has performed best over the past three months, rising over 15%. Goldman Sachs warns that the historical average correction of 7.35% in the S&P 500 from August to October is especially noteworthy in this midterm election year of 2026. Key Variables in September: Nvidia Earnings, Federal Reserve Policy, and Geopolitics JPMorgan notes that the current AI rally shares some similarities with the 2000 Internet bubble, particularly as a divergence within the AI industry chain begins to develop. The firm is focusing on the differing trends between AI hardware companies and major cloud computing firms, believing this divergence reflects market characteristics similar to those just before the peak of the telecommunications capital investment cycle in 2000. At the same time, the AI industry is facing policy pressures. Certain regions in the U.S. are beginning to pay attention to the energy demands brought on by the expansion of data centers, with the Texas governor recently pausing approvals for new data center projects. Wells Fargos chief equity strategist stated that the political resistance surrounding AI and data centers represents significant risks that need to be monitored as the market enters the midterm election cycle.