Students of market history get a chill when the calendar flips to the first month of autumn. And for good reason: September is by far the worst month for stocks.
Since 1928, the S&P 500 has lost on average 1.2% for the month. Compare this to the 0.3% average loss in February, the second worst month.
And this just isn’t a recent phenomenon driven by the fact everyone knows Septembers tend to be a doozy. Thanks to the work of the folks at Global Financial Data, stock price data all the way back to 1792 shows September is still the worst month on the calendar with an average loss of 0.4%. January, April, August, and December are the best performing months.
So given this, and the fact that stocks are well off their April highs, we should expect more losses this month. Right?
Well, not so fast. Measures of central tendencies, like averages, tend to hide important information. Such as the fact that Septembers that come during economic expansions aren’t bad at all. And assuming that the recession that started in 2007 ended last summer as factories increased production and people started going back to work, that’s exactly the situation we have now.
To crunch the numbers, I used the National Bureau of Economic Research’s official tally of recessions and expansions. The result: During economic expansions, September doesn’t tend to be a down month at all, with the S&P 500 posting an average return of 0.2%. Moreover, the last five non-recession Septembers have all been positive.
To be sure, August was much worse than expected given its position as the second best month of the year. Historically it has posted an average gain of 0.7%. Instead, the S&P 500 lost 4.8%. With stocks bounding higher with authority on Wednesday — the first trading day of the new month — it sure looks like all the negativity that traditionally befalls September has already been exhausted. My favorite picks for the new upswing include shipper Dryships (NASDAQ: DRYS), Cliffs Natural Resources (NYSE: CLF), and the Direxion 3X Emerging Market Bull ETF (NYSE: EDC).
As of this writing, Anthony Mirhaydari does not own or control a position in any company mentioned.
Check out Anthony’s new investment advisory service, the Edge, which is launching in September. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.
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