by Jason Bodner
September 10, 2024
Louis Navellier sometimes humorously says we should just close the market in August, since much of Wall Street is on vacation and the trading desks are staffed by the “B” team. That turns August into a generally miserable month, packed with trading shenanigans and volatility.
Fair enough, but I hereby vote that we add September to that list. I’ll go one step further: If I had to choose between the two months, I would leave August alone and close September. Why? Historically speaking, September is unanimously the worst month of the year, measured by market performance.
Here we see monthly performance on average of the four major U.S. stock indexes, since 1990:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
September is mostly pretty ugly. Visualizing the above table as a bar graph makes it even clearer:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In the four trading days last week, the four major indexes saw at least three down days, with the Russell 2000 trading down all four days. The Dow had a tiny gain on Wednesday and NASDAQ rose on Thursday.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
On Friday, we fared little better, with the market having trouble digesting the latest payroll report, which suggests we may be in worse shape than investors thought, after all those continuing downward revisions.
So… Welcome to September!
Even though September is the worst month of the year, historically, it’s still mostly a coin flip whether it ends up or down. Here we see all 34 Septembers and how things shook out… it’s nearly a push, 17-17:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The net negative results can be explained by the fact that the miserable Septembers more than erased the smaller September gains. Below, we see that a few bad apples really did spoil the bunch:
The worst culprits are highlighted below, 2000 to 2002, 2008 and 2022.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Even if we took out the bad string from 2000 to 2002, the recent Septembers would still just be “flat” …
But don’t panic. We are still in the early innings for this September – only four of 20 trading days are in the books – so we still have to wait and see. But there are a few things to keep in mind:
- September seasonality says we should expect a bumpy month, and we are right on cue.
- We are on the precipice of some potentially significant Fed policy changes on September 18th.
- We are in a Presidential election year, which is unsettling – until election day, November 5th.
- Historically, October through December are great months for stocks.
If we do the same exercise as above for October, November and December, we see something very cool…
- October markets are positive 63% of the time, up an average 1.4%
- Novembers are positive 73.5% of the time, up an average 2.8%, and
- Decembers are positive 72.1% of the time, up an average 1.8%.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
And let’s look again at those average returns for those 4th quarter months:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So, let’s recap here:
- We have a 50/50 shot of a cruddy September… Here we are, but there’s three more trading weeks.
- Fourth quarters are the best time of the year since 1990
- Fourth quarters are great roughly 70% of the time.
I definitely like our fourth quarter odds. And with rate cuts imminent, I think we have the odds in our favor for a nice lift by the end of year. Meanwhile, here on the ground, the Big Money Index (BMI) is chopping around since July. Money flows have been moving in and out of stocks in a rotational market:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The BMI is driven by the unusual buying and selling of stocks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
As we can see, the latest leg down in the market has not been on immense selling. With September, a seasonally bumpy time of year, I think traders come back from summer vacations and push stocks down to buy them up in the fourth quarter gain. The data support this hypothesis.
And looking at September thus far, we see that buying is still slightly more in control than selling. And a bulk of that buying has been in companies between $5 and $50 billion in size:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
All this is to say that we can expect continued volatility now and for a little while more. When the election is out of the way and the trajectory of our government comes into clearer focus, we can expect markets to resume lower volatility, and then it’s likely to be long-term uptrend. And I say this regardless of the election winner. Either side has different impacts in different parts of the market, but Wall Street likes certainty, of and by itself. When we know what we’re going to get, we can expect smoother sailing.
One other key point to consider. Our research shows that slow Fed rate cuts are bullish for stocks. The next round of rate cuts are expected to start next week, on September 18th. The talk is now whether or not we will get 50 basis points (0.50%) in cuts, or 25 bps. My thoughts are that the Fed doesn’t want to appear like they are behind the curve – which they are. With continued downward revisions in the payroll reports, the economy looks worse than before. But we are not in an economic free fall and they don’t want recession. For those reasons, I expect a 25 bp cut. And that’s actually good news… because when easing has been slow, the S&P 500 is up 24% on average one year after the first rate cut. When the cuts are bigger and quicker, the gains are 6.1%, well below the S&P 500’s historical 10% average annual gain:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The reason is that quicker rate cuts usually mean a crisis is happening, which isn’t true now. Our research also points out that you should buy pre-election dips because after the election markets usually rip:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
“September tries its best to have us forget summer.” — Bernard Williams.
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Another Downbeat Jobs Report – Plus More Downward Revisions
Income Mail by Bryan Perry
A “Compression Cycle” Hits the Market on Weaker Labor Data
Growth Mail by Gary Alexander
“SEPTOBER” in Market History – Especially in Election Years
Global Mail by Ivan Martchev
This is Just Normal Seasonal Jitters
Sector Spotlight by Jason Bodner
If Given a Choice, Would You Cancel August – or September?
View Full Archive
Read Past Issues Here
Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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