Here’s How Bad the Typical September Is… Or Isn’t

If you’ve been trading for a while you’ve almost certainly heard it before – September is a lousy month for the market. And, broadly speaking, it’s true. The S&P 500 logs an average loss of 0.8% in the ninth month of the year, making it one of only four months of the year the market is more likely to suffer a setback than make a gain. The odds of any loss in September are greater than in any other month as well. Over the course of the prior 73 years, the S&P 500 has lost ground in September 41 of those times, versus only 32 September gains.

The month’s bad reputation, however, isn’t quite deserved. A handful of really, really bad Septembers case the month’s average return to look and feel worse than it really is.

The graphic below tells the tale. On average, the S&P 500 loses about 0.8% of its value in the month now underway. It’s the bearish falls (the season, not the direction) that are such a problem though. When we’re in a bear market, the market loses about 4% of its value this month. If we’re not in a bear market, the S&P 500 actually gains about one percentage point.

And no matter what, even in bearish years, September’s relative weakness usually leads into a year-end rally AFTER October’s slightly-false start.

Will this year be an exception? That is to say, will the fact that we’re in a bull market mean the S&P 500 is ready to log a measurable gain this month? The index looks well overbought, after all, and ripe for profit-taking regardless of the environment.

The thing is, this year isn’t quite as unusual as you might think given a different cycle. That’s the four-year cycle that coincides with the U.S. Presidential term. Here in the back half of the third year of President Joe Biden’s first term, the S&P 500 is actually right where you’d expect it to be.

As you can see, that’s good news and bad news. Although these four year spans are typically bullish, whether they’re in bearish mode or bullish mode, stocks tend to perform lethargically through late-November during the third year of a President’s term. The one we’re in thus far looks about average, and therefore not likely to break the longer-term trend.

Nothing’s etched in stone of course. The S&P 500 could soar from here, or crash, or do nothing other than drift sideways. These tendency charts are just that… tendencies. Rules were meant to be broken. You should always consider all the relevant facts about what the shape of a stock chart is trying to tell you. Now’s no different.

On the flipside, ignore the tendencies at your own peril. They can often tell you a lot when more conventional interpretation of technical charts aren’t telling you much of anything else. If nothing else it’s a framework to start with that will clearly be adhered to or defied.