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Jim Cramer warns September is 'seasonally weak,' but Fed may rewrite the script

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  Published in Stocks and Investing on Tuesday, September 2nd 2025 at 5:36 GMT by Finbold | Finance in Bold
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Jim Cramer Warns September May Be Seasonally Weak, but the Fed Could Rewrite the Script

For the fourth straight year, U.S. equity markets have faced a familiar seasonal headwind: September. On a CNBC panel and in a recent Finbold feature, seasoned market strategist Jim Cramer cautioned that the traditional “September effect” could reassert itself, dragging major indices lower as investors reassess earnings, dividends, and valuation levels. Yet Cramer also pointed out that the Federal Reserve’s policy trajectory might surprise, potentially mitigating or even overturning the usual downturn.

The Seasonal Argument

Historically, September has been the weakest month for the S&P 500 and the Dow Jones Industrial Average. Between 2005 and 2023, the S&P 500 fell an average of 1.2 % in September, compared with an overall annual average gain of 10 % during the same period. The effect is often attributed to a combination of tax‑planning decisions, a lull in corporate earnings announcements, and the “portfolio rebalancing” that occurs as fund managers adjust holdings ahead of the new year.

Cramer highlighted that the last two September runs did not fully align with the pattern. In 2022, the S&P 500 posted a modest 0.3 % gain, and in 2023 the index was flat, with volatility spiking after the Federal Reserve’s June rate‑cut meeting. “It looks like a classic tailwind‑to‑turbine reversal,” he said, underscoring the need for investors to be cautious even as the data suggest the trend may be weakening.

The Fed’s Potential Script‑Rewriting Role

Where Cramer’s analysis diverges is in the Fed’s possible influence. The Reserve’s policy decisions, particularly its stance on interest rates and its forward guidance, have a profound effect on market sentiment. After the Fed’s surprise rate cut in June, Treasury yields fell from a high of 4.4 % to 3.8 %, easing pressure on corporate bonds and easing the cost of capital for growth companies.

The article references the Fed’s latest “dot plot,” a visual representation of where officials expect the federal funds rate to be by year‑end. While the majority of officials now anticipate a pause at 5.25 % through 2024, a minority are poised to raise rates again if inflation persists. Cramer emphasized that a surprise hike would likely fuel a September sell‑off, while a surprise cut could buoy equities, reversing the traditional seasonal expectation.

Furthermore, the Fed’s minutes from the June 20–21 meeting, available through the Federal Reserve Board’s website, indicate that policymakers remain “unresolved” on the pace of tightening. The minutes note that inflation has not yet fully stabilized and that the labor market remains robust. “These minutes could give the Fed a window to act unpredictably,” Cramer said, implying that markets could be caught off‑guard if the Fed were to change course.

Macro Data: Inflation, Employment, and Growth

Cramer referenced key macro indicators that can tip the scales in the coming months. Inflation, measured by the core PCE index, ticked down to 3.1 % year‑over‑year in July, slightly below the Fed’s 2 % target. Yet the Personal Consumption Expenditures (PCE) price index still signals that inflationary pressures remain.

Employment data also play a central role. The U.S. Labor Department reported a 0.2 % increase in non‑farm payrolls in August, while the unemployment rate held steady at 3.9 %. The Bureau of Labor Statistics’ new‑jobless claims data suggest continued resilience in the labor market, which could embolden the Fed to keep rates higher for longer.

In terms of economic growth, the U.S. Gross Domestic Product (GDP) expanded at an annualized 2.6 % rate in the first quarter of 2024, an improvement from the 2.0 % growth rate in the fourth quarter of 2023. This uptick in GDP, combined with stable inflation and robust employment, could prompt a “rate‑cut” narrative, which would counteract the typical September sell‑off.

Market Performance and Investor Sentiment

During the month of July, the S&P 500 posted a 0.9 % gain, while the Nasdaq 100 rose 1.4 %. However, the CBOE Volatility Index (VIX) spiked from 13.5 % in mid‑July to 16.2 % by the end of the month, reflecting growing uncertainty. Cramer linked this volatility to the “fear of a Fed surprise.” He noted that the volatility spike could intensify if the Fed signals further tightening.

The article also cited recent earnings season data. In the first half of 2024, 45 % of S&P 500 companies beat earnings estimates, versus 35 % in the same period of 2023. While earnings quality improved, the number of companies reporting positive year‑over‑year growth rates was lower, indicating potential pressure on valuations.

A Call to Vigilance

Cramer concluded that September will remain a “tipping point.” If the Fed maintains a neutral stance or signals a cut, equities could defy the seasonal trend and even rally. Conversely, if the Fed surprises with an additional hike, the market could see a sharp retreat. Investors, he urged, should monitor:

1. Fed Minutes and Press Conferences – These documents often contain nuanced language that can hint at policy shifts.
2. Inflation Indicators – The PCE index, CPI, and core inflation measures should be watched closely.
3. Employment Data – Payrolls, unemployment rates, and jobless claims all feed into the Fed’s decision framework.
4. Volatility Levels – Rising VIX readings can presage market stress.

The article also cross‑referenced other Finbold pieces discussing the “September Effect” and the Fed’s role in shaping market dynamics. By staying attuned to these data points, investors can better position themselves for what may unfold in the final quarter of the year.

Bottom Line: While September historically carries a seasonal risk of lower equity performance, the Federal Reserve’s next policy move—whether to cut or tighten rates—could be the ultimate determinant of market direction. Jim Cramer’s warning underscores the importance of keeping an eye on both macroeconomic fundamentals and central‑bank signals as the month unfolds.