Potential Market Negatives Part 1: September

I wanted to do a quick series highlighting and quantifying some concerns facing investors over the coming months.  For the first part of this series I wanted to highlight monthly equity performance, as tracked by the S&P500 total return index, from 1993 through today.

September has the dubious distinction of being known as the worst performing month of the year, and after looking at the data, this doesn’t appear to be far from the truth.  Since 1993 on average September has returned -0.7%, and is only one of two months with a negative average return during the period (see chart).  But, historically investors can look forward to the fourth quarter, which tends to bode well for equity markets.  What is interesting, however, is that this data helps to support the old adage sell in May, come back in September, and not miss any significant upside.  Over the past 16 years, the average return for the summer months has been very close to 0.  Over the past 16 years April was the highest returning month at 2.2%.

The only month worse than September over the past 16 years has been February with an average decline of -1.1%.  The worst September over the past 16 years was in 2002 where the index lost 10.5%, on the back of a very negative summer.  The best September during that time was in 1998 when the S&P500 total return index gained 6.8% (see chart).  Looking back at the data this September’s lead up is probably most similar to to 2003, where the index lost -1.1%.  In reality past performance shouldn’t have much to do with September’s actual performance, but you can be certain it will come up more than once in discussion and be on investors’ minds.

Please check back for the continuation of this series as the week progresses.