Is a September Selloff Coming? The ETFs Traders Are Secretly Monitoring
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Aug 29 2025
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Should l Buy TLT?
Source: Benzinga
September Market Trends
- Historical Performance: September has historically been a bearish month for Wall Street, with the S&P 500 index falling over 50% of the time and averaging a decline of more than 1.2%.
- Current Market Conditions: The current risk levels are heightened due to a 17% rise in stocks since May, valuations nearing dot-com bubble levels, and high exposure from hedge funds and quant strategies.
ETF Dynamics
- SPY Performance: The SPDR S&P 500 ETF Trust (SPY) has increased nearly 10% since June, contrasting with broad bond ETFs that have either dipped or remained flat. This outperformance may lead to selling pressure as pensions and mutual funds rebalance their portfolios.
- Bond ETF Inflows: Investors may seek refuge in bond ETFs like the iShares Core U.S. Aggregate Bond ETF (AGG) and iShares 20+ Year Treasury Bond ETF (TLT), potentially leading to inflows as equity positions are extended.
Defensive Strategies
- Low Volatility ETFs: Defensive strategies, including the Invesco S&P 500 Low Volatility ETF (SPLV) and iShares MSCI USA Min Vol Factor ETF (USMV), may attract cash as traders look for stability in sectors like utilities and staples.
- Hedging Activity: Increased hedging activity suggests that volatility-linked ETFs, such as the ProShares VIX Short-Term Futures ETF (VIXY) and ProShares Ultra VIX Short-Term Futures ETF (UVXY), could gain traction during market downturns.
Investor Behavior
- Market Participation: Retail participation typically declines in September, while institutional rebalancing is expected to intensify, positioning ETFs as a key tool for navigating market volatility.
- Tactical Investment Options: Tactical investors may consider inverse ETFs like ProShares Short S&P 500 (SH) and ProShares UltraShort S&P 500 (SDS) to profit from or hedge against market declines without liquidating stock positions.
Conclusion
- Market Outlook: As September approaches, the combination of historical trends, current market conditions, and investor strategies indicates that ETFs will play a crucial role in how investors respond to potential volatility, making this month particularly challenging for the market.
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About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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