The Woes of September (?)

We have now entered what is statistically the worst month of the year for the stock market: September. The S&P 500 has lost 1.12%, on average, in Septembers dating back to 1928, according to Merrill Lynch Wealth Management. September has also been the worst month of the year for the technology-heavy NASDAQ and the Russell 1000 (1000 largest U.S. companies) since 1971 and 1979, respectively, according to Jeffrey Hirsch of the Stock Trader’s Almanac. In a recent report, Hirsch observed in post-election years going back to 1953 that “September is the third or fourth worst month depending on index.” He calculates average post-election year September losses of 0.9% for the Dow Jones Industrial Average, the S&P 500 and the NASDAQ. The Russell 2000 (Small Cap Stocks) has lost 1.6% on average in post-election Septembers.

Certainly, there is much to fret about this September. The Federal Reserve may or may not start to taper its bond purchases when it meets on September 17-18. Congress has returned from its summer break ready to engage in a budget and debt ceiling fight. The exact timing of when the country will hit the debt ceiling is uncertain, but it seems doubtful that the politicians will wait until the end of the month to start playing to their base voters and the television cameras. Syria is a wildcard, with the Obama administration trying to gain support for a strike. And if all this isn’t enough, the end of the calendar quarter always has the potential to bring corporate profit warnings.

It’s easy to see how these potential macro headwinds could cause an investor to reach for aspirin and antacids. But the potential headwinds are not reason enough to shift to all cash. The average September has experienced merely modest declines in stock prices. Certainly once the transaction fees and potential tax costs from selling existing stock holdings, as well as any missed dividends, are factored into the potential net returns, an investor may find that the average loss September incurs is not large enough to justify the effort of exiting stocks early in the month and then getting back into them at the end of the month.

Plus, it’s always important to look past the short term. You will need your portfolio for many years, and hopefully many decades. In the grand scheme of things, the fluctuation of one month doesn’t matter much. Though it’s human nature to feel the pain of a short-term loss, the real risk a portfolio are inflation and longevity risk (the risk of outliving one’s money). This is why I suggest bracing yourself for disappointing performance in September, but not acting on fear or concern over outcomes that are uncertain.

Besides, if you put any emphasis on long-term calendar trends, you should be encouraged that we’re now just two months away from the start of the best six-month period for stocks - November through April.

Source:  American Association of Individual Investors

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

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