S&P 500 faces 2-week make-or-break test as August weakness looms

The S&P 500 enters its toughest seasonal period as a 34% profit plunge at Ryanair, surging oil prices above $84 a barrel, and expiring tariff authority converge to test the bull case.

"August and September have historically been the market's weakest months, and this year the calendar is colliding with genuine macro uncertainty around energy costs, trade policy, and the Fed's next move," said Michael Wilson, chief equity strategist at Morgan Stanley.

The S&P 500 fell 0.8% to 5,534 in Monday's session after touching an intraday low of 5,502, with nine of 11 GICS sectors closing in negative territory. Energy was the sole outperformer, gaining 1.2% as crude prices extended their rally, while technology slumped 1.6% and consumer discretionary dropped 1.4%. Trading volume came in at 4.8 billion shares, about 12% above the 20-day average, reflecting elevated anxiety as the CBOE Volatility Index climbed 1.8 points to 22.4, its highest close in three weeks.

The selloff coincided with three catalysts: Brent crude rising 1.8% to $84.80 a barrel after the U.S. reinstated a naval blockade on Iran, the 10-year Treasury yield climbing 6 basis points to 4.38% as traders priced a 76% probability of a September rate hike, and President Donald Trump's Section 122 tariff authority set to expire July 24 with no clear replacement yet enacted. The cross-asset pressure was broad — the U.S. dollar index rose 0.3% to 100.76, gold slipped 0.4% to $4,021 an ounce, and Bitcoin traded at $63,500, down 2% on the session.

Why August and September matter more this year

The seasonal pattern is well documented: August and September are the only two months where the S&P 500 has posted negative average returns since 2010, with a median decline of 1.8% in August and 0.7% in September, according to data from CFRA Research. But this year the calendar risk is amplified by three distinct pressures.

First, energy costs are rising at the worst possible time. Brent crude has surged 9.6% in a single session — its biggest daily gain since May 2020 — after the U.S.-Iran ceasefire collapsed and a Strait of Hormuz blockade was reinstated. Ryanair's 34% profit miss, driven by unhedged jet fuel costs above $150 a barrel, offered a preview of how sustained high oil prices could pressure corporate margins across transport, logistics, and consumer sectors.

Second, the inflation narrative has flipped. June's CPI came in at 3.5%, below the 3.8% consensus, but the relief was short-lived. With oil prices surging and the U.S.-Iran truce ended, next month's inflation report will not benefit from declining energy prices. Fed Governor Christopher Waller said Monday the central bank may need to raise rates "in the near term" if inflation stays above the 2% target, sending the probability of a September hike to 76% from 57% a week earlier, per CME Group's FedWatch Tool.

Third, trade policy uncertainty is peaking. Trump's Section 122 tariff authority, which set an effective U.S. tariff rate of 11.8%, expires July 24. The administration is expected to replace it with Section 301 duties tied to a forced labor investigation, potentially keeping rates at similar levels or raising them on goods from China, the European Union, and 45 other nations. The transition has already triggered front-loading of imports, with volumes rising sharply in recent weeks, according to the American Action Forum.

The stakes are high. A sustained selloff through August and September would erase the S&P 500's year-to-date gains, which stood at about 8% entering July. The next two weeks — bookended by the tariff deadline and the Fed's July 29-30 policy meeting — will determine whether this is a seasonal dip or the start of a deeper correction.

This article is for informational purposes only and does not constitute investment advice.