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Equity Markets: Is a September Swoon Ahead?

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Equity Markets: Is a September Swoon Ahead? PART 1 OF 5

Equity Markets Tend to Decline in September

Russ explains why investors may want to exercise caution next month.

Certain events and numbers hold quasi-mystical significance for investors. One such area is the date. Many investors place significant faith in cycles and seasonal trends.

As I’ve written about in previous posts, most of these biases and patterns do not hold up to scrutiny. However, in the past, one statistically significant bias has been evident: equity markets tend to decline in September.

Knowing this, should investors be positioning for a 2015 “September swoon“? Maybe, but not necessarily because of the calendar.

Equity Markets Tend to Decline in September

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Market Realist –  September is usually considered to be the bleakest month for stocks—and not without reason! Equity markets (VTI) tend to decline in September. This is a well-documented seasonal trend. The graph above shows the total number of times the S&P 500 (SPY)(IVV) has been up or down each month from 1928 to 2015. The S&P 500 has been down 47 times in September and up only 39 times. This makes September the weakest month for equities historically.

Equity Markets Tend to Decline in September

The Dow Jones Industrial Average (DIA) and the NASDAQ Composite (QQQ) also assume a downward trajectory in September. The graph above shows the average monthly closes for the Dow Jones Industrial Average from 1900 to 2013. The Dow Jones’ worst showing came in September, as you can see in the graph above. The average monthly returns for the Dow have been the lowest in September, at -1.04% (Source: CNBC).

In this series, we’ll discuss why analysts prescribe caution with the onset of fall. We’ll also discuss why the September effect may not be the only reason why investors need to stay cautious next month. The impending rate hike and falling inflation expectations could be red flags for investors as well. Read on to the next parts of the series to see how.

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