On average, September has become the stock market’s worst month. While such a panic has not occurred so far this year, the recent rise in the S&P 500 Volatility Index (INDEXCBOE:VIX) has aroused concern among some investors. Because of historical patterns, many investors leave the stock market entirely for fear of a September slump.
Still, Oklahomans do not live their entire lives in tornado shelters because of the occasional twister. By the same token, investors should not leave the market because a crash could occur. Preparation and protection strategies can make sense.
Rather than leaving the market, investors should position themselves to profit regardless of whether a September selloff occurs.
A September Selloff Remains a Risk
I believe investors should approach this time of year with concern. The market saw massive September selloffs in 1998, 2001 and 2008. Going back much further, the infamous stock market crashes of 1929 and 1987 occurred in October after several years of economic expansion. We trade in the midst of the longest economic expansion in history right now. Hence, this time of year should worry investors.
For the sake of full disclosure, I have become a worried investor myself.
I am currently holding some cash, and I took out a position in ProShares Short S&P 500 (NYSEARCA:SH). I plan to keep SH through October. If the market moves steadily higher, I will only see a modest loss. If a September selloff occurs, I can either profit or at least hedge against possible losses from panic selling in some of my longs.
A September Selloff Is Not a Certainty: That said, despite the doom and gloom that this season can bring, I continue to hold some long positions. Likewise, I encourage investors not to try to time the market. A bad month remains only a possibility, not a certainty. In fact, few succeed at trying to time the market. In my investing history, many of my worst mistakes came about from such attempts. Hence, I look at my position in SH as insurance, not as a strategy to get rich.
Not All Stocks Follow the Overall Market: Also, many stocks perform better during harder economic times. I do not refer only to inverse investments such as SH stock when I say this. As I mentioned in a previous article about recession-proof stocks, investors want to save money during harder times. Hence, they will shop more often at stores such as Dollar General (NYSE:DG) or Dollar Tree (NASDAQ:DLTR) when money becomes tighter. A company such as Disney (NYSE:DIS) can also benefit. Since fewer people work at such times, they have more time to watch movies or perhaps visit a Disney theme park.
Moreover, some stocks operate on their own economy. For example, healthcare costs in the United States now approach 20% of GDP. This comes in much higher than prices in other developed countries.
It also places a tremendous burden on families even during prosperous economic times. As such, consumers want to save money in this area regardless of the economy.
This increases the appeal of stocks such as Teladoc Health (NASDAQ:TDOC). Teladoc offers appointments 24-7 that take place on a laptop or smartphone. These can cost as low as $40, a much lower price than the average in-person office visit.
Other stocks can reach a position where they become unlikely to fall much further. For example, industry conditions have forced AT&T (NYSE:T) into a single-digit price-earnings (P/E) ratio. However, the stock maintains a dividend yield of around 6.25%.
Analysts also predict profit growth in the mid-single-digits. Although investors can ignore such metrics in the short-term, low valuations tend to attract buyers no matter how the overall economy performs.
Instead of engaging in a September selloff, investors should eye this month as a time for both concern and opportunity. Yes, many of history’s most memorable stock market swoons occurred in September. We also trade in the midst of a record economic expansion. For these reasons, employing mitigation strategies can serve investors well.
Despite these conditions, the market remains difficult to time. Investors should by no means treat a crash or even a down month as a certainty. Moreover, many stocks thrive in hard times and others operate on their own economy, performing well in both good times and bad.
Investors have many reasons for concern this September. However, by employing some hedging strategies and keeping an eye out for bargains, investors can profit whether or not a September selloff occurs.
As of this writing, Will Healy is long SH and TDOC stock. You can follow Will on Twitter at @HealyWriting.