By Christopher Mistal & Jeffrey A. Hirsch
Since 1950, September is the worst performing month of the year for DJIA, S&P 500, NASDAQ (since 1971), Russell 1000, and Russell 2000 (since 1979). September was creamed four years straight from 1999-2002 after four solid years from 1995-1998 during the dot.com bubble madness. Bullish election-year forces do little to improve on September’s poor overall performance over the same timeframe. September’s performance does improve slightly in election years, but it is still negative nearly across the board. Only the small caps of the Russell 2000 have been able to escape negative territory and post a modest 0.4% average gain in the last eight election year Septembers.
Although the month has opened strong 12 of the last 16 years, once tans begin to fade and the new school year begins, fund managers tend to clean house as the end of the third quarter approaches, causing some nasty selloffs near month-end over the years. Recent substantial declines occurred following the terrorist attacks in 2001 (Dow: -11.1%) and the collapse of Lehman Brothers in 2008 (Dow: -6.0%). Solid September gains in 2010; DJIA’s 7.7%, S&P 500’s 8.8% were the best since 1939, but the month suffered nearly the same magnitude declines in 2011, confirming that September can be a volatile month.
September Triple Witching week has a modest bullish bias with gains more often than not, but a 14.3% DJIA loss in 2001 has the week negative on average. All five indices have recorded gains on Monday of expiration week for three straight years. Triple-Witching Friday has been strong the past eight years with every index advancing that day except the Russell 2000 (its streak is seven years). The week after Triple Witching has been brutal, down 17 of the last 22, averaging a Dow loss of –1.2%. DJIA suffered its worst week-after loss of 6.5% in 2011.
In recent years, Labor Day has become the unofficial end of summer and the three-day weekend has become prime vacation time for many. 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 DJIA higher in twenty-five of twenty-eight years. Bullishness has since shifted to favor the two days after the holiday as opposed to the days before. DJIA has gained in 13 of the last 18 Tuesdays and 13 of the last 18 Wednesdays following Labor Day.