Early on Tuesday morning, LPL Financial’s Ryan Detrick told CNBC that this week — if history repeats itself — was apt to be the worst week of the year in terms of S&P 500 index performance.
It’s the kind of statistic that some scoff at as mere coincidence, while others dismiss knowing the market rarely moves in an “average,” predictable pattern. Indeed, ACG Analytics’ Lawrence McDonald and Envestnet’s Zachary Karabell made a point of saying the tendency Detrick pointed out may not be one actually worth betting on.
All the same, a closer look at the data may well reveal Detrick is on to something traders have to respect, even if they don’t act on it.
The S&P 500 Runs Into a Reliable Headwind
Detrick’s analysis specifically pegs the 38th week of any calendar year (which is the one we’re on right now) as the historically worst performer of all 52 weeks, with the S&P 500 logging an average loss of 0.61% for the five-day stretch. The market has lost ground in seven of the past week-38s.
Statistically speaking, that’s significant.
Then again, it can’t come entirely as a surprise. The month of September is also a known loser, averaging a loss of 0.68% over the course of the past 66 years. And, it takes a loss in September more often than not. Detrick’s data suggests the bulk of the September loss unfurls during the third week.
Still, is it the kind of thing investors can rely on enough to expect it?
Actually, yes, it is.
The chart below tells the tale. The upper (green) line is the market’s average performance during its bullish years. The lower (red) line is its typical running year-to-date result in a bearish year. The middle (white) line is the average performance for all years, going back to 1940. The yellow line is 2016-to-date. Based on long-term history, the S&P 500 should peak on Sept. 21 of this year, and lose 0.5% before making a bottom on Oct. 4.
While most market “averages” tend to be the midpoint between extremes (meaning rarely does the market do anything close to what could be considered typical), this is a data nugget with a lot of consistency to it. Even in a good year for the market, the span between Sept. 21 and Oct. 4 is flat, at best. And in a bad/bearish year, the S&P 500 loses an average of 1.2% for the same time frame.
In other words, there’s not a lot of reason to expect upside for the latter third of this month, and there’s the distinct possibility of sizable downside.
There are few exceptions to this trend, and even fewer reliable exceptions. Even market darlings like Apple Inc. (NASDAQ:AAPL), seasonal beneficiaries like Wal-Mart Stores, Inc. (NYSE:WMT) and reliable producer American Express Company (NYSE:AXP) all struggle this time of year. Specifically, AXP stock loses an average of 2% between now and early October, AAPL stock generally gives up 4.3% over the course of week 38 and 39 of the year — even in a good year — while WMT stock is apt to give up 1.8% of its value between now and the first part of October.
There aren’t many places to hide.
Bottom Line
Yes, there are exceptions. Sometimes the market will make bullish progress during the last third of this month, and sometimes, some stocks will buck their trend and dole out a gain this week, and into next week.
The exceptions are surprisingly rare, however … rare enough to not chalk the tendency up to mere coincidence. Said another way: If you don’t have a specific reason to expect the market to behave as usual this time of year, you may be trading on little more than hope.
There is a bright spot in the shadow of the usual late-September weakness, though. That is, the fourth quarter is almost always a strong one, with the S&P 500 gaining an average of 3.8% for the three month stretch. Even in the average bearish year, the last three months tend to be little more than flat, not hurting a portfolio even if it doesn’t help.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
