October Outlook for S&P 500: Strong Seasonality but Weak Breadth

October arrives with historically strong seasonal performance, yet market breadth now sits at its weakest point since May 2025.

S&P 500 Moves Past Traditionally Weak September

According to Barchart, September is the sole month since 2010 that has posted a negative average return for the SPDR S&P 500 ETF (SPY). On average, the fund has declined 0.48% in September.

Conversely, October stands as the third strongest month, with SPY averaging a 2.27% gain. It trails only November (3.09%) and July (2.79%).

September's performance is less uniformly negative than commonly thought. SPY has increased in 10 of the past 17 Septembers, including a 0.26% rise this year. However, severe declines—like 9.24% in 2022 and 6.94% in 2011—dragged the average into negative territory.

Historically, a poor September has frequently been followed by an October rebound. For instance, after a 6.94% drop in September 2011, October rallied 10.91%. Similar turnarounds occurred in 2021 and 2022.

Yet the pattern is not foolproof. Three of the past six Octobers—2020, 2023, and 2024—finished in the red. SPY begins October with a year-to-date gain of 13.37%.

Three-Quarters of S&P 500 Stocks Declined in September

The S&P 500's modest September gain concealed broad underlying weakness. FactSet data, illustrated by Deena Zaidi, indicates that roughly 75% of index constituents ended the month lower.

75% of S&P 500 stocks were down this month 📉 📉 pic.twitter.com/ZQTSp936Qo

— Barchart (@Barchart) September 30, 2026

As Treasury yields rose over the month, losses spread across all sectors. Banks constituted a major area of decline, with JPMorgan, Bank of America, and Wells Fargo all dropping. Software firms such as Salesforce, Adobe, and Oracle also retreated.

On the other hand, gains were confined to a handful of areas. In technology, Micron, Apple, and Dell advanced, reinforcing the market's dependence on AI hardware. GE Vernova and Eli Lilly also recorded increases.

Consequently, a slim set of large-cap stocks supported the index while the majority of S&P 500 members declined.

Market Breadth Falls to Lowest Since May 2025

The 200-day moving average is used to gauge a stock's long-term trajectory. Currently, just 40.55% of S&P 500 stocks are trading above this level, implying that close to 60% are below.

On September 30 alone, the percentage dropped 2.59 points. Having peaked near 73% in August, the breadth measure has fallen around 32 points over approximately six weeks.

The current reading is below the April 2026 low of roughly 42%. Interestingly, that prior nadir preceded a rally that brought breadth up to its August peak.

October Outlook: Seasonality vs. Weakening Breadth

Seasonal patterns are favorable for the S&P 500 in October. However, the index begins the month with its broadest weakness in over a year.

For a widespread rebound to occur, a larger number of stocks would need to regain their 200-day moving averages. Without such breadth improvement, the S&P 500 may continue to depend on a narrow set of major companies.