Be careful with September because historically it is a difficult month for investors

Ainhoa ​​Gimenez, Bolsagora

09/06/2006 – 0:24

Euphoria reigns in the markets after the sharp rises in August and the closeness of annual highs (and even historical highs for some indices, such as the Ibex). However, investors should think twice, as September is historically the worst month of the year for stocks.

The traditional recommendation to sell in May and buy in November is not in vain.

1998 was the last year of decent performance on Wall Street in September: the Dow rose 4%. Then the index fell in the ninth month of the year for six years in a row, between 1999 and 2004. Last year the streak was broken, but the Dow practically ended September at the levels at which it began. That losing streak of six years equals that which occurred between 1977 and 1982, and that of 1928-1934.

Taken together, over the last 100 years, the Dow Jones (the only index with such a long history) has dropped in six out of 10 Septembers on average. That means 50% more declines than the second most bearish month historically: October.

And how much does the Dow Jones lose in September? Over the last 100 years, the average loss has been 1.2%. It doesn’t sound like much, but in statistical terms it is; as a reference, it multiplies by 12 the average drop in October in the same period. Worse still: the closer we get in time, the worse the stock market does in September. Thus, in the last 16 years, the average monthly fall is 4.75; and if we take from the infamous 2001 to last year, the average shoots up to 6.4%.

Another interesting lesson from history is that what happens in August determines what happens in September. In the last century, two-thirds of bearish Septembers have followed a bullish August. Moreover, in those years, the rise in August reaches an average of 2%. And the biggest monthly drop in history, higher than the crashes of 29 and 87 (both in October) occurred in September 31: precisely, the stock market fell by that percentage, 31%, in September of that year.

What is the reason for this historical misbehavior? There are theories for all tastes, but the most widespread is the one that attributes them to something as old as taking profits. In fact, the previous months are usually the best of the year. Another widely heard is that the confession season of companies that begins in September not only brings recognition that they will not meet their objectives in the quarter, but in the entire year.

And of course, there is always the effect that this bad reputation alone causes. Since September has such a bad name, investors tend to get nervous when August ends, preferring to get out of the market and wait until November.