Friday, September 07, 2012

September is the cruelest month

[9/1/09] September historically has been so bad for the stock market that, even in the absence of a good explanation for why it should be such a poor performer, you may want to pull a few chips off the table.

Consider September's record back to 1896, when the Dow Jones Industrial Average was created. September on average since then has produced a return of minus 1.2%, in contrast to an average gain of 0.7% for all other months. No other month comes even close to such a dismal record.

Making the statistical case against September even stronger is the remarkable consistency of its poor performance. Consider the accompanying table, which shows how September ranks against all other months of the calendar in each of the last 11 decades, as judged by the Dow.

DecadeSept rankSept ave return
1901-191012th-2.6%
1911-19202nd+2.9%
1921-193012th-2.8%
1931-194010th-3.2%
1941-19508th+0.4%
1951-196012th-1.2%
1961-19709th+0.4%
1971-198012th-1.3%
1981-199012th-1.8%
1991-200010th+0.2%
2001-200812th-3.0%

Notice from the table that in all but one of the last 11 decades, September was a below-average performer. In more than half the decades, in fact, the month's rank was dead last.

Why, given such an overwhelming record, would anyone question September's bad record? Because there is no good theory for why the month should be such an awful month for the stock market. And, without such an explanation, there's the distinct possibility that the statistical pattern is just a fluke.

[iluvbabyb]

[9/7/12] So the real question facing these investors who are having cold feet: Is there some reason to expect this coming September to buck the trend of Septembers past?

The analysis I presented in one of my columns earlier this week, you may recall, failed to find any historical statistical support for such an expectation — even given the market’s strength in recent months. ( Read my Sep. 4 column, “September is a downer.” )

Naturally, this hasn’t completely persuaded everyone, especially in light of Thursday’s very strong market. So let me present more evidence: The remarkable consistency with which September has been a poor performer.

In fact, as you can see from the accompanying table, September on average has been the worst month of the calendar in nearly half the decades of the last century — and a below-average performer in all but one of them. The chances that this record is the result of random chance are extremely low.

The bottom line? Even if you didn’t know or appreciate it at the time, September is the month you were really trying to avoid by selling in May and going away.                                   

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