September seasonality is once again weighing on stocks. Advisors discuss how they handle the market’s trickiest month.
By Gregg Greenberg
September 10, 2024
https://www.investmentnews.com/equities/september-is-historically-a-scary-month-for-stocks-why-not-market-time-it/257067
Forget “Beetlejuice, Beetlejuice, Beetlejuice.” For financial advisors and their clients, it’s “September, September, September” that seems to summon the market’s devilish spirit.
With all due respect to Beetlejuice Beetlejuice director Tim Burton, it’s been far more ghoulish on Wall Street than in theaters so far this month. His hit sequel opened to $110 million in sales this past weekend, blowing up long dormant box offices. The S&P 500, on the other hand, sank 4.2 percent last week, kicking off what is historically a diabolical month for investors.
The S&P 500 has dropped an average of 1.2 percent in September over the past 96 years, making it the weakest month of the year for stocks, the WSJ points out. According to Dow Jones, the benchmark index finished lower 56 percent of the time over that span.
So if that’s the case, why don’t wealth managers sell in September and come back in October? The data clearly backs up the strategy. Right?
“We don’t ‘Sell in May and Go Away,’” says Jeffrey Hirsch, editor of the Stock Trader’s Almanac and a clear believer in the seasonality of market returns. “We ‘Buy in October and Get Our Portfolio Sober!’ Then we reposition May-July and sit tight August and September and wait for a fatter pitch.”
Since 1950, September has been the worst performing month of the year for the DJIA, S&P 500, NASDAQ (since 1971), Russell 1000 and Russell 2000 (since 1979), according to Hirsch. September was creamed four years straight from 1999-2002 after four solid years from 1995-1998 during the dot.com madness. More recently, the DJIA, S&P 500, NASDAQ, Russell 1000 and 2000 have been down seven of the last 10 Septembers and the last four straight. The average losses over the last 10 years range from –1.5 percent by the DJIA to –2.9 percent for NASDAQ, Hirsch says.
And even though election years have historically been solid years, this tendency appears to have little to no impact on September’s abysmal performance. Hirsch’s research shows September’s ranking in election years does improve slightly but remains in the bottom third. The average performance remains negative with the exception of the Russell 2000 gaining 0.4 percent on average since 1980.
“The bull market is still intact but wait for a fatter pitch,” advises Hirsch. “Election uncertainty, extended valuations, some big earning misses and few troubling economic data points helped the worst month of the year deliver an opening blow.”
Chris Brown, above right, private wealth advisor and managing director at Kingswood US, also believes the historic data clearly shows that market movement has seasonal trends. His general philosophy does not include timing the market except, however, in certain circumstances – like September.
“September can be a great opportunity to deploy cash to equities. Buying opportunities are often created by investor fear or anxiousness,” said Brown. “The data is overwhelming for September and should be noted by wealth management professionals. There are opportunities to take advantage of throughout the month. Add to it the possible election cycle volatility and we could see some great opportunities to deploy cash.”
Eric Beyrich, above left, co-chief investment officer at Sound Income Strategies, agrees that there is still seasonality in markets, but does not view the month’s precarious history as an easy way to beat the market.
“(September) Being down 56 percent of the time is not game changing for investors like us with multi-year horizons. For day traders, and fast money algorithms, this slim winning percentage can be enough to make hay however,” said Beyrich.
More powerful than the September swoon, in his opinion, is the tax loss selling season that typically starts in September and peaks in October for mutual funds and November/December for retail investors.
“This phenomenon causes stocks that are down to become oversold as investors puke them out to offset gains. This often creates great buying opportunities for value investors and we look forward to this season and prepare for it every year,” said Beyrich.
Elsewhere, Howard Coleman, chief investment officer & general counsel at Coldstream Wealth, says the seasonality of market returns is indeed a real phenomenon. But as a fundamental, long-term wealth manager he does not try and utilize that seasonality to time the market.
“While seasonality works most of the time, it doesn’t always work. There is no reason to take that risk if there is no fundamental basis for it,” said Coleman.
Meanwhile, Tom Graff, above centre, chief investment officer at Facet, does not use seasonality in his investment process. In his view, if there is something to seasonality, it would logically be caused by investor flows and he has never seen compelling evidence that flows are fundamentally different in September compared with any other quarter-end month.
“We have happened to have some major events fall in September, such as Lehman’s bankruptcy or 9/11. There was nothing about the calendar month that influenced the timing of these events,” said Graff.
Nathan Hoyt, chief investment officer at Regent Peak Wealth Advisors, does not look to seasonality as a core investment thesis because he is no market timer.
“In essence, market timing is based on the hope that you are smarter than the market or that you are convinced the future will behave like the past. I prefer an investment strategy that I can stick to regardless of the calendar, rather than one that depends on the calendar,” said Hoyt.
John Mosher, partner at Unique Wealth, simply says: “Most losses in the market occur when people think they can time it. Timing the market isn’t as important as time in the market!”
Paul Bennett, founder and CEO of DecisionMap Wealth Management, notes that although the S&P 500 has historically declined on average 1.2 percent in September over the past 96 years, it’s important to note that the stock market has performed positively in September a little bit less than half the time or “pretty darn close to a 50/50 chance.”
“In other words, although many may say September’s historical performance connotes seasonality in the markets, I wouldn’t try to time the market, as it is a fool’s errand to rely on a coin flip to guide investment decisions,” said Bennett.
Finally, James Rockwood, founder & CEO at CapIntel, believes the market is “always in a cycle” and investing requires patience and an understanding of the value of time. In his view, it’s important for today’s advisors to educate their clients on the specific market they are currently in and “to coach them into looking at things from their specific perspective, that is, the perspective of the time they’re investing over.”
“Clients need to understand how their money invested today will help achieve future goals. At the end of the day, they want confidence in their investing strategy and timeline during any seasonal periods,” said Rockwood.
