Historically, September is the worst overall month for stock market returns. And since 2009 has already seen a great stock market rally, some analysts think we’re due for the obligatory pullback and consolidation next month. So if you’re looking to do any purchasing, you might want to keep a close eye on the markets and have some extra cash ready for that time when the stocks and funds on your watchlist make their dips.
Trend For Seasonal Weakness in September and Other Market Miscellanies
I thought I’d share with you some other “market minutes” that I’ve been hearing and reading about recently from various commentators appearing on Canada’s BNN and from other analysts’ articles.
- To see the last time there was a consecutive 5-month run-up of 49% in the US stock markets you’d have to go back to the 1930’s. For this reason and the continued weakness in real economic numbers in the US, some are calling this a speculative market.
- While September usually always sees lower returns, crashes often happen in October due to overreactions to September numbers.
- Larry Berman sees a 10-15% pullback on the major Canadian banks over next 2-3 months. Says they rallied up quite a bit higher than he expected. Don’t buy them at current levels, he says.
- Year to date, there has been a huge outflow of money from funds based in US markets and has flown into Asian emerging markets instead. Specifically, 39 billion+ has been withdrawn from US markets and 36 billion has gone into emerging markets globally (14 billion of which went to Asia).
- There is also now about an equal amount of cash in ETFs as there is in mutual funds. This will be the year that ETFs begin to takeover mutual funds in terms of total assets.
- “Apparently 20% of personal income in the U.S. now comes from the government.” (Andrew Bell, BNN – mid-conversation, not sure where he got the data or how was calculated)
- Of last month’s GDP numbers in China, 80% came from government spending, up from an average of 40% historically.
What’s your opinion on seasonal investing, whether or not you’re a market timer? Have you witnessed or read about any marked changes in markets based on where we’re located in the year? For example, the so-called “jewelry season” in India and China has historically been counted on as a factor in driving up gold prices in the final third of the year.
Either way I know I’m going to be doing some buying, so I’ll probably be posting more on the markets over the next couple of months as I pay attention to major movements. It’s market timing, yes, but generally I do it only on the “buy” end – I like to hold my investments as long as possible. But of course I want to pay a good price, so of course I’m going to “market time” and pay as little as I have to for my stocks.
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{ 21 comments }
I’ve been hoarding cash for this very reason. The only things I have now are bank stocks that I have at a low purchase price (ING at $3.50, BAC at $7) I unloaded things like wells fargo once it hit my original purchase price of $25.
Are you just in U.S. bank stocks? Oh I see, you’re hoping to let them go once they make back their losses. I was going to say, you should see all the charts on the Canadian banks – almost perfect “V” shaped recoveries (see Scotia!).
I’m not thinking of selling anything, but I’m braced for the fall in my portfolio value -I prefer to wait until I’ve owned the shares for at least a year for tax reasons. I hope they’ll get back to current prices in the next year or two.
I’m definitely going to buy if the market goes down in Sept/October, as expected.
Right now I’m only in US bank stocks. I’ve already sold everything that I wanted to sell. I sold everything that I had a high average cost on like WFC at $25. Holding WFC at $25 was too much risk in a market that I feel is going towards another correction in October. I didn’t really take a loss but I sold them as soon as they were back in the black.
I kept everything that I had a low average cost on like BAC and ING. The rest is sitting in cash until October.
I don’t have any Canadian banks right now however if there is another correcting in the Canadian market I might start getting in.
“While September usually always sees lower returns,”
That’s a little confusing. Usually and always can’t both be true.
@LH – thanks for the proofreading help! You’re right. But I’m going to leave it, a minor issue, because if I update it’s going to show up as another article in everyone’s RSS.
@mfd – Yeah, wait for that 10% drop in the Canadian banks, but then I’d get in – and just hold them. I still have some Citi stock – waiting for it to improve. But not sure I’d buy any other U.S. financials. Even Goldman Sachs is too overpriced, and probably the only one I’d consider anyway.
I am pulling my retirement account back to cash by end of the month and I have some money sitting on the sidelines. I also will be selling most, if not all my stocks. I am really bearish long term though, I just do not see the US bouncing back anytime soon. If the floor drops out I will be all in for sure though.
“Of last month’s GDP numbers in China, 80% came from government spending, up from an average of 40% historically.” – China, Next Bubble to Burst? http://ideas.blogs.nytimes.com/2009/08/11/china-next-bubble-to-burst/?src=twt&twt=nytimes
@Atlas – wow, all back to cash? I’m rebalancing a bit – unplugging some DRIP programs and converting to cashflow instead, etc., but still holding what I’ve got. For me, it will just be about the acquisition of new shares if the price is right.
Currently my favorite defensive investment has been Vanguard Utilities ETF (VPU). A lot less volatility than the energy etf (VDE), and a much better yield (somewhere around 5%).
This run-up has been a relief- it’s actually not frightening to check my portfolio, but I wouldn’t mind seeing some cheaper buying opportunities in the near future.
My approach is similar to yours Money. I don’t often sell just because I think the market is overpriced and ready for a correction (because then my prediction would surely be wrong!), but I try to hold onto more cash and let the dividend-cash build up until a good buying opportunity is at hand.
@Blake – I like utilities too. Does sound like we have some of the same strategies.
I observe that in my country the first sell-offs already started. The prices went down about 20% and more shops are starting to sell at lower prices. This is a little bit strange for me that now I see sell-offs many times a year. Not only spring sell of for winter clothes, summer for spring, autumn for summer and winter for autumn. Everything is like a whirlwind for me. I see winter clothes in summer, and short pants in February :o Maybe there is some sort of politics in this but I’m not pretty convinced about that. Well… The most important thing is that I can use those sell-offs like anyone else :)
I am at least 90% cash right now and may be 100% cash by the end of the day. There are no numbers suggesting this current stock market explosion is based on anything but hope. Just factoring in the people falling off of unemployment is a very serious hit to the economy. I do market time when it is obvious. The coming downturn is as obvious as the previous one.
It should also be noted that the positive GDP numbers from Europe (announced yesterday/overnight) are not uncommon in a recession. Actually, it is fairly common to have positive quarterly GDP numbers during a down turn. This does not indicate a recovery.
@Chad – wow, that’s really extreme. I’m not that bearish. But lately I am seeing the case for continued deflation as a bit more likely. You’re right, I think, about some of the positive numbers everywhere – net profits are “up” in many cases just because so many companies have cut costs, staff, etc., and written off losses. It’s not all any actual earnings.
The positive numbers are one time bonuses from cost cutting, staff cuts, and re-stocking of an inventory that will be depleted more slowly with reduced consumer spending. None of these mean growth for the future. At best they allow companies to tread water.
I’m not saying the economy will decline like it did over the last 8 months. I am saying it will be roughly flat lined to slightly negative over an extended period of time. This means the current market run-up isn’t based on real information, but on psychology.
It seems a little extreme because I don’t fallow the “expert” advice on allocation and market timing, as it doesn’t make much sense for people who pay attention and are willing to put in a little research. Their advice is seems good in easy money markets, as anyone can toss out a positive return then. Unfortunately, the easy money market is over. These market cycles tend to take 15-17 years based on historical cycles, so the rough times have a way to go.
A pullback is definitely something to watch for… especially with the 50% run since the March lows. I’ve been holding up IRA contributions since June b/c I just don’t buy into the whole “V shaped bottom” idea.
A couple sectors are still attractive b/c they were hammered, but the broad market isn’t making that much sense to me.
As always I’m well over 90% invested but I did trim a couple of speculative / riskier positions that had run a long way last week to take some gains just in case we see a pull back.
Regarding October and its crashes, I read an interesting theory once that suggested it was coupled with harvest time and getting the grain in — that there was some lingering cultural memory. Just a thought!
@Monevator – a lingering cultural memory… I like that, interesting. Have no idea the truth of it, but I think I’ve heard something related to that. Another weird thing I’ve read is that September is all-around deemed the “most stressful” month of the year (for everyone, in general) by some psychological study. That’s probably related in some weird butterfly-effect kind of way, too:) It’s also hurricane season, back-to-school, Congress is back, back-from-vacation, etc.
Since 1950, September has been the worst performing month on a percentage basis for all three major U.S. indices. Check out this graph of monthly performance from 1950 and 1980, to present. September is easily the worst month…not even close.
http://seekingalpha.com/article/93199-september-worst-month-for-market-performance
It is highly highly unlikely that September’s poor performance is due to some lingering harvest time psychology for two reasons. One, the percentage of people who have actually farmed is very very low, so they have no clue what harvest time entails. Two, harvest time for an agrarian society is a time to celebrate, not collapse in dispair.
There are also more measurable reasons to account for September lows.
One reason September could be the worst month is that everyone is back to work on Wall Street. As with most businesses, the summer finds 15-20% of the employees on vacation at any given time. Shrinking the total hours worked for this time period shrinks the total number of trades performed. Plus, when they get back, the reasons below all get done:
1. Mutual funds want to dump their losing stocks before the end of the third quarter in order to free up funds for investing fourth quarter.
2. Hedge funds doing the same thing.
3. Mutual funds doing profit taking by end of third quarter (window dressing).
4. Hedge funds doing the same thing.
5. Investors sell stocks to pay for their summer vacation credit card bills.
6. Investors sell stocks to pay for their kids’ fall college tuition.
7. The last day to file your tax return with extensions is October 15. Investors sell in September to have funds to pay their tax bill in October.
8. Investors selling in September due to fear of being in the market during October (the month of major crashes: 1929, 1987, 1989, & 1997).
9. Uncertainty over earnings of consumer goods companies for the third quarter due to so much vacationing during the summer.
There is no one reason alone responsible for poor Septembers.
September 2009 is going to be a horrible month for world equities. I would suggest shorting the markets with inverse ETF;’s and put the rest in cash.
The “positive” spin put out by the propaganda machine is filled with half truth and out and out lies.
Hang on, it going to be a rough ride
Wow with everyone getting ready for the September sell offs all over the place Ill just keep holding cash and buy at the lows. Wall street is not going anywhere. The market is fundementally flawed and a gamble right now, but show me a better way to make money from money in the short term.
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