Will September Live Up To Reputation As A Bad Month For The Markets?

With August closing out on what is likely to be its best monthly performance since 1986, investors now turn their eyes to September, historically the worst-performing month of the year.

With stocks soaring high, should investors actually be worried about September living up to its reputation?

No, says Mark Hulbert, a contributor to MarketWatch.

He acknowledges that September’s reputation is earned.

“September’s reputation as a poor month for equities is well-known. Since the Dow Jones Industrial Average DJIA, +0.56% was created in the late 1800s, the Dow has fallen an average of 1% in September. The Dow’s gain in all other months averages 0.7%.”

But, he says “The only thing to fear about the stock market in September is fear itself.”

There’s no plausible reason for why September should be a poor-performing month according to Hulbert, despite years of effort to assign the blame.

He also points out that historically, markets do well in September during an election year.

Lawrence Tint, the former U.S. CEO of BGI, the organization that created iShares, says it’s a fool's errand to try and find a plausible reason for September’s historically bad performance.

“Unless you or I are able to discover something nobody else knows about, by the time we know why a pattern exists, it’s too late to profit from it,” he said in an interview. That’s because, once this discovery is made, “savvy investors would immediately begin jumping the gun by selling in August, others in turn would try to beat them, and the historical pattern would quickly disappear.”

If the markets are going to drop in September, it will be because the bull market is taking a breather, not because the calendar turned, says Art Hogan, the chief market strategist at National Securities.

He says the relative strength index, or RSI, is significantly overbought.

“We’re overbought in the S&P 500 as an index in the short run. When that sits around 50, you’re basically neutral. When it gets to 30, you’re oversold,” he said. “And, when you get to 60 or 70, you’re overbought. We’re currently at about 75 on the S&P 500. So, we’re clearly overbought.”

He says we could see a drop of 5% to 10% in the S&P 500 sometime between now and October, but believes the market will continue to move higher.

“The S&P 500 is in a long-term secular bull market. I just think we’re overdue for a bit of consolidation,” he said. “We have a 3,600 target for the next 12 months on the S&P 500, which doesn’t seem like a lot. But I don’t think it’s going to be a straight line.”

If we get that pullback, Hogan says there could be opportunities in financial, energy and industrial stocks.

“If you’re long the S&P 500 right now, I would hold on. If you’re looking to put new money to work, I would wait for a bit of a pullback,” Hogan said. “There’s going to be a massive amount of economic activity that happens in 2021.”