Dating back to 1928, the S&P 500 and its precursor have declined 1.1% on average during September, making it the worst month of the year by a wide margin. The so-called "September Effect" hammered stocks once again this year. The S&P 500 has slipped 5.3% since the end of August. But history says the index is headed higher in the fourth quarter.
Here's what investors should know.
The holiday quarter could send the S&P 500 higher
The fourth quarter has historically been the strongest quarter of the year for the S&P 500. Since 1928, the index returned an average of 0.6% in October, 0.9% in November, and 1.3% in December, for a total gain of 2.8% during the holiday quarter.
Listed below is the S&P 500's average return in each quarter:
- Q1: 1.7%
- Q2: 2.1%
- Q3: 1.2%
- Q4: 2.8%
To be crystal clear, I am not suggesting that investors place short-term bets on the stock market, but rather explaining why now is a good time for long-term investors to buy stocks. Of course, past performance is never a guarantee of future results. But with the S&P 500 11% off its all-time high, buying opportunities abound regardless of which direction the market moves in the coming months.
Here's one remarkable growth stock to buy now and hold long-term.
Shopify is the market leader in e-commerce and omnichannel commerce software
Shopify (SHOP 2.27%) helps businesses manage sales and inventory across physical and digital channels. Its platform not only supports brick-and-mortar shops and direct-to-consumer websites, but it also integrates with marketplaces like Amazon, Etsy, and Walmart. Additionally, Shopify provides ancillary solutions like payment processing, and it connects merchants with logistics partners for freight and fulfillment services.
Shopify's full-stack strategy has helped it become the second-largest e-commerce company in the U.S. and the global market leader in e-commerce and omnichannel commerce software. That strong competitive position has consistently translated into solid financial results.
Shopify beat expectations on the top and bottom lines in the second quarter. Revenue rose 31% to $1.7 billion, and non-GAAP (adjusted) earnings improved to $0.14 per share, up from a loss of $0.03 per share in the prior year. But I would call attention to another metric: attach rate (revenue as a percentage of gross merchandise volume).
Shopify's attach rate reached 3.08% in the second quarter, the highest in company history. That means merchants are leaning more heavily on adjacent products and services, and the uptick in adoption was broad-based. Management highlighted traction with long-standing solutions for payment processing and financing, as well as newer solutions for cross-border commerce, buy now, pay later, and sales tax compliance.
That rising attach rate is especially encouraging because it indicates that Shopify still has a knack for product innovation. That quality has been instrumental in its past success, and it should keep the company on the leading edge of the commerce industry for years to come.
Shopify is chasing a massive market opportunity
Readers may see e-commerce as old news, but the industrywide tailwinds are still blowing at a brisk pace. Straits Research says online retail sales will compound at 8% annually to reach roughly $8 trillion by 2030, and e-commerce software sales will climb at 12% annually to reach $14.5 billion by 2031.
Shopify will undoubtedly benefit from those tailwinds, but the company is also taking steps to increase its market share and expand its market opportunity. For instance, Shopify is pushing upmarket with Shopify Plus and Commerce Components. The former is a full-stack commerce platform for large enterprises, and the latter allows large enterprises to incorporate individual components of the Shopify commerce stack into their own systems.
Among other features, Shopify Plus and Commerce Components provide access to wholesale (business-to-business) commerce tools. That puts Shopify in front of another large market opportunity. Wholesale e-commerce sales are projected to increase by 20% annually to reach $33 trillion by 2030.
Here's the upshot: Shopify could easily grow its top line in the high teens for the foreseeable future. Indeed, Morgan Stanley expects revenue to increase by 19% annually through 2033. That makes its current valuation of 10.5 times sales look like a bargain. So investors should jump at the opportunity to buy this growth stock today -- and if the stock bounces higher through the holiday season, all the better.
