• Home
  • About
  • Services
  • Contact
  • Media

September & Seasonality – Silly or Smart?

Posted September 11, 2014 by Denis Smirnov

The first week of September brought about incessant chatter of a period of bad seasonality in the market. There were countless media reports, blog posts and CNBC segments all touting that September is “the worst month”. So I decided to take a look at the numbers and provide my take on (un)importance of seasonal patterns in investing.

First, let’s define what “seasonality” is in the stock market. Investopedia defines it as “A characteristic of a time series in which the data experiences regular and predictable changes which recur every calendar year.” So basically, it’s a tendency of the market to act a certain way in any given time period. ON AVERAGE (this is the important part).

Some professional investors (particularly traders) pay close attention to these patterns. Stock Trader’s Almanac is a very popular desk reference book on seasonality (I have one but don’t look at it much). There is even a mutual fund that trades based on seasonality – Probabilities Fund A (PROAX) (I do not recommend it).

So what does monthly seasonality looks like? Exhibit 1 shows average monthly returns for S&P 500 and percent of time they were positive. Sure enough, September is the worst month with average loss of -0.5% and only 45% positive performance. December, on the other hand, is by far the best month to be in stocks.

It’s also clear that there is solid evidence behind the Best Six Months strategy (November – April). Although the other six months average much lower return, I still don’t see why you would “Sell in May and Go Away” if you can still make 1.5%? It might make more sense in more normal interest rate environments when you could make more than that on a 6-month CD and avoid equity risk.

Exhibit 1 – S&P 500 Monthly Seasonality Since 1950 (price only)

19-1

Ok, so you should short the market every year on September 1st, right? Not so fast – let’s take a look at September returns for each year going back to 1950 (Exhibit 2). Top and bottom 5 are highlighted in green and orange, respectively. So if you get out of stocks (or even short them), you might miss out on some decent returns including 4 of the last 5 years and 8 of the last 10. Clearly, “every calendar year” part doesn’t seem to apply here.

Exhibit 2 – September S&P 500 Returns (price only)

19-2

Moreover, exact timing of your trades gets even more tricky. Josh Brown had a post last week on September performance patterns: Charting the Average September Stock Market. It shows that on average first couple weeks of the month actually tend to be quite good and the drop starts around the 16th.

Conclusion

It is true that September has the worst record of the 12 months. However, it does not mean that you should sell your investments each year on August 31st! If anything, it might be a good time to invest some extra cash just in time to enjoy the seasonal run-up into year-end and up to April.

Seasonality has its place and can be a useful tool. Be that as it may, I would recommend using it as just one of the data points you look at to guide your investment strategy.

Share this:

  • Facebook
  • LinkedIn
  • Twitter
  • Pocket
  • Email

Sign up to the newsletter

Categories

  • Bear Markets
  • Bonds
  • Economy
  • Education
  • Financial Planning
  • Indexing
  • Investing
  • IPO
  • Retirement
  • Taxes
  • Uncategorized
  • Valuation

Archives

  • January 2023
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • May 2022
  • April 2022
  • February 2022
  • January 2022
  • October 2021
  • September 2021
  • July 2021
  • February 2021
  • January 2021
  • November 2020
  • October 2020
  • September 2020
  • July 2020
  • June 2020
  • May 2020
  • March 2020
  • February 2020
  • January 2020
  • November 2019
  • October 2019
  • September 2019
  • July 2019
  • May 2019
  • February 2019
  • January 2019
  • December 2018
  • October 2018
  • September 2018
  • July 2018
  • June 2018
  • May 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • October 2013
About
  • Background
  • Who We Are
  • The Gordian Knot
Services
  • Services
  • Planning Process
  • Investment Philosophy
Contact
  • Contact Details
  • Inquiry Form
  • Map
Media
  • Articles
  • Blog
  • Reviews
Dave
Denis
 
 
 
 

Gordian Advisors Financial Planner

Office: 2200 E. River Rd., Suite 109, Tucson, AZ 85718

Phone: 520-615-2779

Email: info@gordianadvisors.com

Download Form Form CRS Client Relationship Summary

Download Form ADV Disclosure Brochure

Gordian Advisors may only transact business or render personalized investment advice in those states where we are registered, or have filed notice, or are otherwise excluded or exempted from registration requirements. Material discussed is meant for general illustration and/or informational purposes only, and is not to be construed as investment advice. Nothing on this web-site should be interpreted to state or imply that past results are an indication of future performance. Although this information has been gathered from sources believed to be reliable, please note that individual situations may vary. Therefore, any information should be relied upon only when coordinated with individual professional advice.