September has historically been one of the weaker months for equities, with the so-called September Effect often linked to seasonal portfolio rebalancing, tax-loss harvesting, and cautious positioning ahead of year-end. While not guaranteed, this tendency often makes investors more alert.

At the same time, you are correct that the current setup is unusual: volatility traders, hedge funds, and other large speculators have built significant short positions in the VIX. This reflects a strong consensus that calm will persist. The risk here is that if volatility does spike—whether from macroeconomic surprises, Fed-related uncertainty, or political events such as the ongoing Trump-Fed drama—forced covering of those short positions could amplify market swings.

Key considerations for September:

Fed Policy: Markets remain highly sensitive to signals on rate cuts, balance sheet actions, or political interference. Any shock to Fed independence could rattle sentiment.

Positioning Risk: With volatility trades heavily one-sided, the market may be more fragile than it appears.

Macro Data: Labour market, inflation, and earnings reports could either reinforce the “soft landing” narrative or reignite recession concerns.

Seasonality: Historically weaker performance in September suggests caution, though it is not deterministic.

Whether to follow the market or stay cautious depends on your investment horizon:

Short-term traders may want to hedge or trim risk given the asymmetry in volatility bets.

Long-term investors could use any pullback as an opportunity, provided their portfolio is diversified and aligned with their goals.

As for August, many investors have seen solid gains thanks to resilient tech earnings and softer inflation prints, but pockets of weakness remain in cyclicals and small caps.