September: back to school sell-off?

August 31, 2016 09:00 AM

September ranks as the worst performing month for the S&P 500 and Dow Jones indexes since 1950. It also ranks as the worst performing month for the Nasdaq Composite since 1971.

So why are traders advised to “sell in May and go away,” instead of September? Well, a closer look indicates that the September weakness is a relatively new phenomenon, or at least has accelerated in this century. The four worst Septembers for the Nasdaq have occurred from 2000 on. Four of eight of the  worst performing Septembers since 1950 in the Dow and S&P 500 have come since 2000. Not exactly sure what that can be be attributed to, but September’s lead as the worst performing month has grown since 1999. The average  return for the Dow in September since 1999 is -0.76%, but from 1999 on it is -1.59. 

For the S&P 500 and Nasdaq negative returns have tripled in that time. 

Perhaps this is skewed because the two major market crashes, in 2000 and 2008, basically began in September. Presidential election years have produced extremely weak performances, but this too could be skewed by 2000 and 2008, which were not driven by the election but long-term economic bubbles bursting.

Teeing up a potential disastrous September is the fact that equity indexes have just set all-time highs, and have also proven to be skittish as illustrated by the massive sell-off following the Brexit vote. Some pattern traders have also predicted a major downturn this September (see “Cycles,” page 53).

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.