The Cruelest Month?

What’s the worst month for the stock market historically?

Most people (including myself) probably would’ve guessed October. For example, I knew the Great Depression was highlighted by a late-October tumble in stock prices back in 1929. I know that “Black Monday” occurred in October of 1987. And I remember October as the month when the 2008 downturn went from ‘concerning’ to ‘oh wow, this is serious.’

So it was surprising to find a site that tracks S&P performance since 1950, proving that October is actually a net-positive month for the market. That’s the good news.

The bad news? Its’ immediate predecessor, September, is historically the worst month for stocks. Since 1929, the Dow Jones Industrial Average (DJIA) and S&P 500 have each dropped an average of -1.1% in September.

Why? Different analysts have offered several explanations—draw your own conclusions:

Return to Work. The third quarter of the year begins with July and August, the time of year when most American families (and traders) take their vacation, declining trading volume and making it much more difficult to forecast impending economic events. Cautious investors return to work and sell off stocks, preferring to take a ‘wait-and-see’ approach.

End of Fiscal Year. Many mutual funds see their fiscal years draw to a close on September 30, leading to a sell-off of underperforming securities just in time to file that final report.

Mood/Attitude of Investors. The weather turns cooler, kids are back in school, days are growing shorter. September is the end of summer, typically seen as the light-hearted, relaxed time of year.

“There is this kind of negative vibe out there that tends to accentuate any negative events,” Dan Seiver, a finance professor at San Diego University, said to the Associated Press.

Whether you buy these explanations or not, the September phenomenon has been known for some time—in 2011, Mark Hulbert of MarketWatch pointed out that research has been ongoing for years about this trend. Once such a pattern is known and widely recognized, Hulbert argued, investors find ways to exploit it and eventually reverse the trend. But since such studies began, the gap between September’s performance and that of other months has actually widened.

Lastly, the trend has been remarkably consistent. In each of the nine decades examined, September’s cumulative performance has never ranked higher than 9th among the twelve months of the year. And it’s been dead last in five out of those nine decades.

So enjoy the last weeks of summer—and the current growth in stocks. But when the calendar changes, maybe your portfolio should follow suit.

Phil Cannella
Partnered with CBS Radio Network, Phil Cannella reports on the issues most important to the American retiree.
Phil Cannella
- 2 days ago
Phil Cannella

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