September 3, 2012
Weekly Market Outlook
By Geoff Bysshe
I think most traders would say October is the worst performing month of the year, but in fact it’s not. On average, October is up .41% for the month. The month that has earned the status of the worst performing month on average for the S&P 500 is September.
But wait, it’s an election year! Aren’t things different in an election year?
I decided to do a little digging to see if we can expect something different from September in an election year. Below you’ll find a very interesting table of stats going back to 1928 which does a great job of answering this question.
You’ll also notice that I added some of my own data as the last column because before I consider whether or not to put any faith in the election year effect, I want to see how this year has been tracking versus the table’s implications.
As you can in the table, YES, the election year does give the bulls a little bit of a break in September. Instead of it being the worst performing month of the year with an average return of -1.17%, in an election year it is the third worst with an average performance of -.48%. Still down, but I guess the bulls can’t complain with such a sizable improvement.
So how has this year been tracking history’s path?
Unfortunately for the bulls, this year is following history’s guide pretty closely. If you look at the last column in the table labeled “2012” and compare it to the first column of “Presidential election year” data, you’ll see that while the magnitude of the moves has been different, the direction of the month has been right on 100% of the time. Also note that this year’s worst performing month, May, is also the worst performing month historically (in an election year).
I guess we should expect a down month in September. And, while I don’t mean to throw more fuel on the bears fire, you may want to take note of the fact that October is no longer a positive month when we’re in an election year.
Perhaps the bulls can focus on the fact that the worst is over (May), and historically November and December are positive months.
With this in mind, this week’s video takes a look at when I’ll get concerned that the September effect may beginning to take hold. After all, the numbers I’ve looked at above are averages, not every September will be a down month.
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