“Wake me up when September ends” was a song by the band “Green Day”—and you can’t blame investors for feeling the same way. September has historically been the worst month of the year for stocks—in fact, the only month that has posted negative returns on average for the past 90 years for the S&P 500 Index (Exhibit 1).
Is there a rational explanation for this seasonal pattern, or is it just a statistical anomaly?
I have heard every possible explanation. To name a few:
- Investors sell stocks when they return from their summer vacation.
- Investors are forced to sell stocks to pay for their children’s college education.
- Mutual fund managers with fiscal years that end in the fall sell their losers for window-dressing purposes.
The third one might be on to something, but for the fact that a wide majority of mutual funds have fiscal years that end in December. The reality is that, while returns in September are negative on average, September’s median return since 1926 has been positive, as have been all other months.
It looks like we have a case of a few bad Septembers (1930, 1931, 1933, 1937, 1974, 2001, 2008) that have spoiled the month’s reputation. As Homer Simpson once said, “People can come up with statistics to prove anything…Forfty [sic] percent of all people know that.”
Nonetheless, this September poses its own particular challenges:
- Hurricanes Harvey and Irma: Our thoughts are first and foremost with those affected by Harvey and our hope is that Irma turns away from any populated area, including the continental United States and Caribbean Islands. Historically, such regional events have not been significantly disruptive to the financial markets. Investors can expect a near-term drag on the nation’s gross domestic product as a result of the disruption in commerce in the nation’s fourth largest market and the nationwide rise in gasoline prices. The drag will likely be offset by the rebuilding efforts, as was the case with Hurricanes Katrina and Sandy.
- The Debt Ceiling: It appears as if we narrowly avoided the looming danger of an impasse over the debt ceiling—at least until December: The president and congress have agreed to extend spending and the government’s borrowing authority for the next three months. We would applaud an increase of the statutory debt limit to provide immediate support for the victims of Hurricane Harvey. But we may be facing a contentious fiscal fight at the end of the year. Failure to raise the debt ceiling would result in the government prioritizing certain payments over "non-essential" services. (The government collects enough tax revenue to make social security and Medicare payments, to service the debt and to fund the military.) More importantly, it would result in decreased confidence in the U.S. political system and in the full faith and credit of the U.S. government. Ultimately, we believe that the United States will not default on its obligations. The last two times it approached the brink, stocks experienced declines in the month prior to the debt-ceiling date—only to rally substantially in the subsequent 12 months.
- North Korea: I don’t pretend to understand the inner workings of the Democratic People’s Republic of Korea or the thinking of Kim Jong-un. Extreme blunders and calamities are common throughout history. As investors, we do not have the predictive capabilities to determine when disasters will occur. If investors were only to invest when there were no geopolitical risks, they would never invest at all. We are better served focusing on our areas of expertise. The current backdrop of synchronized global growth, modest inflation, and monetary policy accommodations in most countries and regions of the world continues to bode well for equities, in our view.
So, will this September join the ranks of the infamous Septembers of the past—or will it look more like September 1998 (when the S&P 500 Index was up 6.4%) and September 2010 (when it was up 8.92%)? Only time will tell. To quote Green Day, “It’s something unpredictable.” Will the band prove right? For long-term investors, we believe it will. Not only is the median return of stocks positive in every month, but stocks have also posted positive returns 99.8% of the time over any 15-year period dating back to 1926.1
In conclusion, our thoughts are with the people of the Gulf Coast and Florida. With the 16th anniversary of September 11, 2001, approaching next week, we are reminded of the heroism and resilience of the American people. To paraphrase Green Day once more, we will make the best of this test—and not ask why.
Through all tragedies and conflicts, I hope that one day we’ll be able to look back at our collective journeys through the words of Billy Joe and Green Day as “the time of our lives.”
- ^ Source: Morningstar, as of 8/31/17. The IA SBBI US Large Stock Total Returns Index represents that of the U.S. stock market. Past performance does not guarantee future results.
The S&P 500® Index is a capitalization-weighted index of 500 stocks intended to be a representative sample of leading companies in leading industries within the U.S. economy. Index includes reinvestment of dividends but does not include fees, expenses, or taxes. The index is unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict performance of the Fund. Past performance does not guarantee future results. Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
OppenheimerFunds is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.