Stocktake: Has correction time come for stock markets?

September has historically been the worst month for the US stock market. Given that markets have been soaring for months, are equities at a heightened risk of correcting? “There hasn’t been a truly bad day since June”, remarked ForexLive’s Adam Button last Wednesday, in what he said has been a “magical, non-stop rally”.

Ironically, stocks plunged on Thursday, and one could certainly argue that further bloodshed is merited. Stocks have gained in each of the last five months. The S&P 500 soared 7 per cent in August alone, its best August since 1984.

However, this doesn't actually indicate that a proper selloff is coming. LPL Research's Ryan Detrick looked at the last 15 occasions where stocks gained at least 7 per cent in one month; a month later, stocks were higher on all but two occasions, averaging gains of 3.2 per cent.

Looking further ahead, Detrick found 26 other five-month winning streaks; a year later, the S&P 500 was higher in 25 of those 26 cases.

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This rally has gone further than anyone thought possible in March, but history suggests any pullback will be fleeting, for now anyway. With stocks, strength begets strength.