Investing in September can be like biting into a jelly doughnut and finding boiled cabbage—full of unwelcome surprises.

"History suggests September is the worst month of the year in terms of stock-market performance," reported Isabel Wang of Morningstar. The Standard & Poor's (S&P) 500 Index "has generated an average monthly decline of 1.2%...dating back to 1928, according to Dow Jones Market Data."

One reason for the sharp stock market decline last week appeared to be concerns that the Federal Reserve may have waited too long to lower rates. During the week, economic data continued to present a mixed picture of the U.S. economy. The employment report released on Friday showed the United States added about 142,000 jobs in August—a significant increase from July—and that average hourly earnings were up 3.8 percent year over year. In addition, the unemployment rate ticked lower to 4.2 percent.

However, the report wasn't quite as rosy as those numbers suggest. Fewer jobs were created than economists had predicted and "downward revisions from the two previous months suggest that the labor market is cooling faster than the initial data may indicate," reported Lauren Kaori Gurley and Rachel Siegel of The Washington Post.

The information has some pundits speculating that Fed officials may opt for a larger rate cut than originally anticipated at the Fed meeting in September, according to CME FedWatch. On Friday, Federal Reserve Governor Christopher Waller said he support a September rate cut and was "open-minded about the size and pace of those reductions," reported Ann Saphir of Reuters.

In recent weeks, investors have been feeling quite bullish, according to the AAII Sentiment Survey. During the last two weeks of August, more than 50 percent of survey participants indicated they expected the stock market to rise over the subsequent six months. The level of optimism among survey participants came close to the survey's all-time high (52.9 percent on December 20, 2023) and remained well above the historical average of 37.5 percent.

Last week, investor sentiment shifted. Fewer participants were bullish – and fewer participants were bearish. The number of respondents who were neutral increased, which means they think stock prices will remain relatively unchanged over the next six months.

By the end of last week, major U.S. stock indices had moved lower, while bond markets rallied. U.S. Treasury yields fell across the yield curve and finished the week with the yield on the benchmark 10-year U.S. Treasury above the yield on the 2-year U.S. Treasury for the first time since July 2022, reported Connor Smith of Barron's.

When markets are volatile, as they were last week, it's normal for investors to worry. Before making any changes in response to short-term market fluctuations, remember that historical performance supports the idea that staying invested is a sound way to pursue long-term financial goals. If you have any questions about recent market volatility or your investments, please get in touch.