What’s Up With September and The Markets?
I read a lot of stuff every week whether it be blog posts, research papers, or books and occasionally I find something that is interesting and worth sharing. This morning I came across a blog post from Jay on The Markets where he throws out a very interesting and possibly crazy idea.
Only invest for the first 3 trading days of September and forget the rest of the month.
I know it’s a crazy idea and this is far from investing advice but the statistics are pretty compelling.
![]("http://thoriumwealth.com/wp-content/uploads/2018/08/SeptemberTrading.jpg)
Figure 1.
*The growth of $1,000 invested in the S&P 500 index ONLY during the 1st 3 trading days of September from 12/31/1927 through 8/27/2018 (blue line).
*The growth of $1,000 invested in the S&P 500 index ONLY during ALL OTHER trading days of September during the same time (orange line).
To put this chart another way the first 3 trading days of September are good the other 17 days not so much.
Now this is not exactly a strategy any long term investor or quite frankly any trader should follow. What it illustrates though is the fact that data can be manipulated and massaged to prove just about any point. I am sure if we shrunk this September trading idea down instead of starting in 1927 having it start in 1987 the results would be only up a few percent for the first 3 days and only down a few percent for the remaining days of the month. This chart does show that September is generally a seasonally weak month for the equity markets.
So lets look at this same strategy for 1987 to present.
Figure 2.
*The growth of $1,000 invested in the S&P 500 index ONLY during the 1st 3 trading days of September from 12/31/1987 through 9/7/2017b (blue line).
*The growth of $1,000 invested in the S&P 500 index ONLY during ALL OTHER trading days of September during the same time (orange line).
As you can see the first three day strategy has been a pretty good strategy but overall it highlights that September is just a historically weak month for equities. Not that timing is the market that someone can do successfully and I am not even remotely suggesting that you do it. This was just an interesting thought exercise.
Also an interesting September checkpoint comes from the folks at Shaeffer’s Research.
The table below shows that over the past 20 years, there were nine occasions when the index was up at least 5% heading into Labor Day. In those nine years, the rest of the year was positive every time, with an average gain of 6.95%. The other years were positive just 73% of the time, with an average return of only 1.34% — and way more volatility, going by the standard deviation of returns.
Of interesting note the last time the markets were positive through Labor Day by more than 5% and then finished the year negative was 2008 and we all remember what happened after Labor Day. It’s hard to believe that the Lehman bankruptcy and Wachovia and Wamu take unders happened 10 years ago. I don’t say this to sound an alarm because I believe we are still firmly in a bull market. I say this more as a reminder that sometimes statistics can fool you.
Remember none of this is actually investing advice and if you would like us to help you with your investing needs give us a call in the office at 336-310-4233 or email me phuminski@thoriumwealth.com and we can schedule a time to discuss your unique situation.