September: Do your homework

August 31, 2015 09:00 AM

The start of the business year and end of summer vacations made September a leading barometer for the first half of 20th century, but now portfolio managers tend to clean house after Labor Day. Since 1950, September is the worst performing month of the year for Dow Jones Industrial Average and S&P 500, and more recently for both the Nasdaq Composite (since 1971) and Russell 1000. September was creamed from 1999-2002 after four solid years from 1995-1998 during the dot.com bubble. 

Although the month has opened strong in 13 of the last 20 years (a fading trend in the S&P 500), as tans begin to fade and the new school year begins, fund managers tend to sell underperforming positions as the third quarter closes. Recent substantial declines occurred following the terrorist attacks in 2001 (Dow: −11.1%), 2002 (Dow −12.4%), the collapse of Lehman Brothers in 2008 (Dow: −6%) and the U.S. debt ceiling debacle in 2011 (Dow −6%). However, September is improving, with the S&P 500 advancing in eight of the last 11 Septembers and the Dow climbing in seven.

September triple-witching week is basically 50/50 with gains slightly more often than not, but it has suffered many large losses. The Dow, S&P 500, Russell 1000 and 2000 have recorded gains on Monday of expiration week from 2009 through 2011. The Nasdaq Composite has been down three straight years since. Triple-witching Friday has been firm the past 10 years with every index advancing at least eight times. The week after triple-witching has been brutal, down 21 of the last 25.

In recent years, Labor Day has become the unofficial end of summer. Business activity ahead of the holiday was more energetic in the old days. From 1950 through 1977 the three days before Labor Day pushed the Dow higher in 25 of 28 years. The market now favors the two days after the holiday. The Dow has gained in 14 of the last 21 Tuesdays and 16 of the last 21 Wednesdays following Labor Day.

 

About the Author

Christopher Mistal is the director of research for stocktradersalmanac.com, which identifies market opportunities based upon historical patterns and market seasonality in conjunction with fundamental and technical analysis. 
@AlmanacTrader