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September’s Dark Side

September is historically one of the weakest months for equities, and so far, the month is living up to its reputation. Through 9/15, the S&P 500 (SPX) is down about 1.3%, but for the month that holds the “weakest month of the year” title that seems a bit tame. Studies show that it has historically been the back half of September that has presented the real problems.

Since 1957, the first half (1H) of September average and median return have been 0.05% and 0.18%, respectively, and positive 53% of the time; meanwhile, the second half (2H) of September average and median return have been -0.71% and -0.21%, respectively, and positive just 47% of the time.

Maybe this has been a thing of the past and archaic market environments/structures are skewing these numbers? The data suggests otherwise. In fact, since 1990 the return profile is worse. Just 36% of 2H Septembers have been positive with an average loss of -1.2% since 1990. What about just the past 10 years? From 2013 – 2022, the 2H of September has been negative 70% of the time with an average loss of -1.5%.

Last year was especially brutal, and true to recent trends, as the second half of September delivered an 8% loss after the first half already knocked the S&P 500 down over 1%.

Volatility Lows

A congruent trend relates to market volatility, commonly measured via the SPX Volatility Index (VIX). Along with the 2H of September being historically weak from a return perspective, volatility also tends to be higher – which makes sense given that VIX and SPX tend to be negatively correlated. As for exactly why the second half of September is more volatile, the jurors and academics alike are still out deliberating, but some common attributions are quarter-end rebalancing/trading and the end of summer travel/time off work. We also see this as a window for companies to warn about negative earnings before quarter end.

The VIX ended around 14 yesterday (9/15) which keeps it at a relatively low level, and so far, this month the VIX has deviated from its normal tendency as seen in the line chart below. However, it would not be uncommon to see this tick higher…especially with the multiyear lows nearby.

Year End

Before the bears get too excited about this historically weak stretch ahead of us, notice a key piece of information return tables added below – the performance for the rest of the calendar year (far right-hand column). From the end of September to the end of the calendar year the S&P 500 has been positive 82% of the time with an average gain between 4% and 5% – and that stat is consistent from 1957 to 2022. To bring up 2022 again, note that from the end of September to the end of December SPX gained almost 8%. Of course, this was not enough to fully recoup the losses for the entire year, or the back half of September alone, but it followed the historical seasonal pattern…which is the important point.

Investors tend to have a love/hate relationship with October, the month that holds the title of ‘the bear killer”. Most of the end-of-year gains are usually attributable to the general tailwinds of the seasonally strong period – including the Santa Claus Rally, Sell in May Go Away Come Back in November, etc. Regardless, the numbers speak for themselves.

There is always a real possibility of deviating from historical norms. As rightly said by Scott Sagan, a professor at Stanford, “things that have never happened before happen all the time.” We work in a world where pessimism, seemingly by default, is considered smart/thoughtful and optimists appear intellectually complacent. So, in the mind of an optimist today, as we trudge through the historically pessimistic month of September be patient and on the lookout for potential buying opportunities.


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