September - A Hex on the Market?

When it comes to spectacular market crashes, many investors think of October. The crash of 1929 came in October. In 1987, that month saw a stomach-churning 25% drop in the Dow on Black Friday. Market historians point out, however, that both of those October crashes were presaged by stock prices that started falling in late August or September. In fact, according to a Wall Street Journal report, when statisticians crunch the numbers, it turns out that September is the month when market goblins do their worst work.

Over the last 80 years, according to researchers, stock prices have dipped an average of 1% during September. It may not seem like a lot, but September is the only month with an average return in the red. In all the other months, gains averaged about 1%. Other research suggests that the phenomenon is global. One study covering several years showed that investors lost money in September in 15 of 18 markets in developed countries. It’s one thing to cite statistics, say market analysts; it’s another to explain what’s happening. So far, there have been many theories but few conclusions, with opinions ranging from third-quarter profit warnings to a psychological aversion to risk as winter approaches.

Analysts are more in accord about what to do about the September effect. Most say that selling off stocks in anticipation of a downturn that may or may not happen isn’t cost effective. Even if the market does have a sell-off, it’s probably unlikely to be more than the transaction costs of unloading stocks and buying them back in November.