September – not October – is the Worst Month for Stocks
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New York, USA, 2 September 2009. October, for many investors, is the bogeyman month. It is the month when you need to be out of the market or risk losing your pants. Remember the Great Crash of 1929? That was October. The Crash of ’87? October. The End of the World when the AIG and Lehman melted down last year? Yep you guessed it, the big bad O.[br]
New York, USA, 2 September 2009. October, for many investors, is the bogeyman month. It is the month when you need to be out of the market or risk losing your pants. Remember the Great Crash of 1929? That was October. The Crash of ’87? October. The End of the World when the AIG and Lehman melted down last year? Yep you guessed it, the big bad O.[br]
This ‘truth’ is so deeply ingrained in the seasoned investor’s psyche that the real truth may come as a bit of a surprise. October has seen some meltdowns to be sure, but these are the exception. On average, October is a positive months for stocks. In fact every month is positive on average. Every month, that is, except September, the true Dark Lord of the markets.
Sam Stovall, Chief Investment Strategist at Standard & Poors (S&P), has been investigating stock market data going back to 1929. “September is the month where the S&P 500 has the highest frequency of declines, with the highest overall drop in stock values,” said Mr Stovall.[br]
“On average, stocks advance 0.5 per cent per month. But in September, they decline 1.3 per cent on average. September is the only month where stocks drop in value more often than rising, and it is the only month where the overall growth rate is negative.”
In fact, in various studies that EconomyWatch.com has analyzed, if you look at the Dow Jones Industrial average over the last 20, 50 or even 100 years, September is the only month in which stocks decline in value. In 58 of the last 100 Septembers, stock values have declined, with an average decline of 0.96 per cent.
Worst still, the average loss has been growing, to 1.23 per cent for the last 50 years, and 1.49 per cent for the last 20. If you only take into account negative years, then the average loss in the last 20 years is over 2 per cent.
80 per cent of big drops take place in the Autumn, with 6 of the 15 worst happening in September, 4 in October and 2 in November. Indeed, S&P analysts believe that the conditions are ripe for a more severe drop than average, based on a collection of historical trends they have analyzed. The S&P may go down as far as 940, which would be an 8 per cent decline.
US Stocks have pounded up 53 per cent from their March lows to the end of August. Is big bad September going to strike again? No-one can say for sure, but lets just put it this way: taking some profits – and some money off the table – may not be such a bad move right now.
Bjorn Borgisky, EconomyWatch.com
