September’s bad rap

  • Historically, September is the stock market’s worst-performing month
  • September returns have improved over past 30 years, though
  • Bearish Septembers have more often followed “extreme” Augusts

It’s hardly impossible, but the SPX will have to rally around 4% the remainder of this week to avoid a negative August.

Not that most people would likely care all that much—August has historically tended to be a mixed bag for the equity market—except that we all know which month comes next.

Get ready for September, the only month of the year with a negative average (-0.6%) return over the past six decades.

September has tended to be a down month more often after an exceptionally strong or weak August.

Spoiler alert: It may not be the cause for concern (especially for traders) that some seasonal headlines would have you believe.

Yes, the market has been volatile lately, and the US-China trade situation may have reached a new level of uncertainty last week. But even in the event September lives up to its reputation for bearishness, there are reasons bulls may be inclined to remain upbeat. Take a look at the S&P 500’s (SPX) September returns since 1960:

S&P 500 (SPX) September returns, 1960–2018. More up Septembers since 1989

Source: Power E*TRADE

First, it’s not like the month is an automatic downer. Since 1960, the SPX has lost ground in September only six more times than it’s closed up: 32 losers, 26 winners, and one scratch (in 1979). But yes, that adds up to the worst winning percentage (44%) of any month of the year.

Things have changed in more recent history, though. Since 1989, September has been up as often as it’s been down, although a handful of big hits have skewed its average return to the downside. In fact, if you take away just the two worst offenders, 2002 (-11%) and 2008 (-9%), September’s average return flips to the plus column (+0.32%).1

In terms of how things pan out this month, consider this: Since 1960, the 35 positive Augusts have been followed by:

●One flat September (1979)

●14 up Septembers

●20 down Septembers

Bottom line, investors may not want to weep too much if the SPX doesn’t make it back into positive territory by Friday, since up Augusts have been followed by up Septembers only 40% of the time. By comparison, the 24 negative Augusts since 1960 have been followed by an even split of 12 up Septembers and 12 down Septembers.

And here’s a bit of color that may have escaped many analysts: September has tended to be a down month more often when it follows an exceptionally strong or an exceptionally weak August:

●September after 10 weakest Augusts: seven down, three up; -2.1% average return

●September after 10 strongest Augusts: seven down, two up, one flat; -1.6% average return

●September after all other Augusts: 21 up, 18 down; +0.27% return2

As of yesterday, the SPX was down around -3.6% this month, which puts it in the sweet spot between the two extremes.  

Finally, long-time market players know late-summer/early fall market sell-offs have, more often than not, turned out to be longer-term buying opportunities. This year, if the most bearish scenario unfolds and we get a down August followed by a down September, the chart below shows how the last three months of the year have historically played out.

S&P 500 (SPX) Q4 returns 1960-2018. Stronger Oct.–Dec. returns after negative Aug.-Sep.

Source: Power E*TRADE

Of the 12 years since 1960 that followed a down August with a down September, only one (1977) had a losing Q4, and the average return in these years was almost twice that of the average for all other Q4s. So, while there’s no reason to root for a lousy September, if we get one, traders may want to be on the watch for better-than-average opportunities in Q4.

Market Mover Update: Gold continued to be one of the biggest beneficiaries of this month’s market volatility, rallying yesterday to its highest level since April 2013—December gold futures (GCZ19) tagged $1,565/ounce before pulling back.

Today’s numbers (all times ET): Germany GDP (2 a.m.), S&P Corelogic Case-Shiller HPI (9 a.m.), FHFA House Price Index (9 a.m.), Consumer Confidence (10 a.m.), Richmond Fed Manufacturing Index (10 a.m.).

Today’s earnings include: American Woodmark (AMWD), Autodesk (ADSK), Hewlett Packard Enterprise (HPE), JM Smucker (SJM), HEICO (HEI), Momo (MOMO).


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1 All figures reflects S&P 500 (SPX) price data from January 1960 through September 2018. Supporting document available upon request.

2 10 weakest SPX August returns from 1960–2018 ranged from -4.7% to -14.6%; 10 strongest SPX August returns ranged from +3.6% to +11.6%.

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