Inflation, Europe’s energy blues, China’s slowdown—just when you thought markets had reached scary-story saturation, another bogeyman nears: the calendar. September’s approach always brings the usual annual warnings that stocks “fall in the fall”—but this year’s early weakness has seasonality adherents convinced an extra-awful autumn awaits. Don’t buy it. Whatever the autumn months bring, it won’t be because of the calendar. September swoon and “season of crashes” myths are long on legend but short on logic.
September doomsayers argue the month historically has been bad for stocks—and that several world-shaking crashes have come in September and October. There is some truth to that. Since good data begin in 1925, September is the only month to average negative returns, at -0.65%.[i] October? It ranks ninth out of all months, averaging 0.67%.[ii] Some of history’s scariest crashes have indeed come as summer flips to fall, too. In 1929, the market plunged -19.7% in October, sticking a fork in Roaring Twenties euphoria. Two years later in September, US stocks had their worst month in modern history: a -29.6% drubbing amid Dust Bowl and Great Depression devastation. October 1987 brought the “Black Monday” meltdown—which by itself represented most of stocks’ -21.5% decline for the month. Then in 2008, Lehman Brothers’ September collapse accelerated that month’s -8.9% selloff, which rolled into a -16.8% October nosedive.[iii]
But while those bludgeonings stain memories, September’s and October’s full stories are far more nuanced—providing no hints for investors. While a few big outliers have flipped September’s average return negative and weighed on October’s average, both months actually feature positive returns more often than not. Again since 1925, 52.1% of Septembers and 61.5% of Octobers have been up.[iv] Both months’ median returns—the midpoint of all observations—are positive, too, showing the negative average results from outliers.[v] That means investors shunning stocks in September and October usually sidestep gains, not losses.
Then, too, fleeing in the fall leads to another tricky decision: When do you get back in the market? Even if an autumn slide does happen to arrive, sitting out too long risks missing a powerful rebound.
Seasonality fears don’t pass the logic test, either. Forward-looking markets pre-price all widely known information, data and opinions—and investors have been aware of seasonality talk for eons. The most famous may be “Sell in May and go away,” the faulty idea that investors should sell stocks in May and stay out of the market until October’s end. It stretches back centuries, beginning as “Sell in May and go away, and come back on St. Leger Day”—a reference to English traders’ heading to the countryside for summer vacation and returning for mid-September’s St. Leger Stakes horse race.[vi] Ironically, that very definition now runs headlong into “season of crashes” mythology, raising the question: Which myth is right?
Regardless, maybe selling ahead of the summer months worked hundreds of years ago, when traders’ summer sojourns tanked market liquidity, teeing up potential shocks. But today, what investment firms sign off in summer? Few, if any—destroying whatever shred of a rationale ever underpinned the practice.
Others point to the “Santa Claus Rally,” the notion that stocks tend to jump in December. Or the “January Effect,” which holds that returns in January’s first few trading days—or those of the full month—predict the year. Sometimes their explanations for one month’s slightly better returns than another’s seem seductive. But the flood of pixels spilled on these myths year-in, year-out dooms any edge they offer—if they ever did.
Think about it: If September and October really were inherently bad for stocks, investors would front-run them, rushing for the exit in August. August returns would tumble. Soon headlines would warn annually of an “August Adieu.” September returns might improve with the selloff moved up. Then? Before long smart investors wouldn’t wait for the August Adieu. They would sell in advance of the declines. Enter the “July Jitters”! But investors would start front-running them, too, giving rise to the June … Jinx? Jettisoning? Followed by May-hem? Well, you get the idea. All this means seasonality myths not only don’t hold up—they can’t hold up, if you believe markets are at all efficient.
That won’t stop the calendar cranks from continuing to spread seasonal myths this fall—and long after. As they do, remember the wisdom of Mark Twain’s Pudd’nhead Wilson: “October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February.”[vii] Maybe stocks fall this fall. Maybe they rise! But whatever happens, it won’t be because the calendar flipped. Don’t use seasonality myths as a reason to ditch stocks now. Look ahead to the recovery we believe is nearby.
[i] Source: Global Financial Data, Inc., as of 8/16/2022. S&P 500 average total returns in the months of September and October, 1926 – 2021.
[iii] Ibid. S&P 500 total returns, 9/30/1929 – 10/31/1929, 8/31/1931 – 9/30/1931, 9/30/1987 – 10/31/1987, 8/31/2008 – 9/30/2008, and 9/30/2008 – 10/31/2008.
[iv] Ibid. Frequency of positive returns in the months of September and October, 1926 – 2021.
[v] Ibid. Median returns in the months of September and October, 1926 – 2021.
[vi] “Sell in May and Go Away: 5 Better Investing Tips,” James Brumley, Kiplinger.com, 5/1/2019. Accessed 8/25/2022.
[vii] The Tragedy of Pudd'nhead Wilson and the Comedy Those Extraordinary Twins, Mark Twain, American Publishing Company, 1894.
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