Start of business year, end of summer vacations, and back to school made September a leading barometer month in first 60 years of 20th century, now portfolio managers back after Labor Day tend to clean house. Since 1950, September is the worst performing month of the year for DJIA, S&P 500 and NASDAQ (since 1971). Sizable gains in September 2009, 2010, 2012, 2013 and 2017 have lifted Russell 2000 to second worst (since 1979). September was creamed four years straight from 1999-2002 after four solid years from 1995-1998 during the dot.com bubble buildup.
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 Russell 2000 has been able to escape negative territory and post a modest 0.8% average gain in the last ten election year Septembers.
Although the month used to open strong, S&P 500 has declined nine times in the last twelve years on the first trading day. As tans begin to fade and the new school year begins, fund managers tend to sell underperforming positions as the end of the third quarter approaches. This has caused some nasty selloffs near month-end over the years. Recent substantial declines occurred following the terrorist attacks in 2001 (DJIA: –11.1%), 2002 (DJIA –12.4%), the collapse of Lehman Brothers in 2008 (DJIA: –6.0%) and U.S. debt ceiling debacle in 2011 (DJIA –6.0%). However, September is improving with S&P 500 advancing in 11 of the last 16 Septembers and DJIA climbing in 10.
September Triple Witching week is generally bullish with S&P 500 advancing twice as many times as declining since 1990, but it has suffered some sizable losses. Triple-Witching Friday was essentially a sure bet for the bulls from 2004 to 2011 but has been a loser five to seven of the last eight years, depending on index with S&P 500 weakest, down seven of the last eight. The week after Triple Witching has been brutal, down 24 of the last 30, averaging an S&P 500 loss of 0.95%. In 2011, DJIA and S&P 500 both lost in excess of 6%. The week after was last positive in 2016 and 2017 for DJIA and S&P 500.
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 16 of the last 26 Tuesdays and 19 of the last 25 Wednesdays following Labor Day.