Markets don't typically perform well in September
— -- September is the month when kids go back to school, leaves turn yellow and gold, and stock prices drop like ripe apples.
The Standard & Poor's 500-stock index has fallen an average 0.9% in September since 1959, making it the worst month of the year for investors. (February is second, with an average 0.3% loss.)
September's not just a blight on the S&P 500, it's the worst month for the Dow Jones industrial average and the Nasdaq composite index, too, says Jeff Hirsch, editor in chief of the Stock Trader's Almanac. "And in the first two years of a president's term — the post-election year and the midterm year — September fares a bit worse," Hirsch says.
Investors have suffered more double-digit losses in September than in any other month, says Sam Stovall, chief market strategist for S&P. The S&P 500 has dropped 10% or more seven times since 1929, vs. five times for October.
And, Stovall says, September holds the record for worst monthly performance since 1929 — a 29.9% plunge in September 1931.
What makes September a time to dismember stocks?
In the 19th century, money would flow from New York to the South and Midwest, where it was needed to pay farmers for their crops. Investors wanting to borrow would have to pay high interest rates, which often pushed the stock market down. "Banking was local and transient," says Robert Stovall, CEO of Wood Asset Management. The Federal Reserve now regulates seasonal money flows.
Today, however, September means a fall for stocks for other reasons:
•Stashing cash. The stock market often rallies in December and January, and investors sometimes sell stocks in September so they have cash on hand to buy the next rally, Hirsch says. December is typically the market's best month.
•Waking up. Investors typically lose interest in the stock market in the summer. "They concentrate more on their tans than their portfolios," S&P's Stovall says. When they return, however, they often decide that the market is less appealing than they thought.
