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September: Off to a Rough Start

by: Prieur du Plessis September 05, 2008    
Prieur du Plessis

Prieur du Plessis

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Many reports have been published over the past few days about stock market seasonality and, specifically, about September typically being the worst month of the year.

I included the following paragraph in a recent post:

Seasonality indicates that ‘September has firmly secured the rank as the worst month of the year’ (Stock Trader’s Almanac), but that a year-end rally typically starts in late September / early October.

September has certainly got off to a rough start, with both the MSCI World Index and the MSCI Emerging Markets Index having declined every single trading day since September 1.

I realize numerous studies have been done on the historical pattern of monthly returns, but in order to gain a first-hand feel for the data, I have researched monthly returns of the Dow Jones Industrial Index from January 1958 to August 2008. Some interesting statistics are summarized in the table below.

 5-sept-1.jpg

The following two tables show the percentage positive months (top graph) and the average monthly return (bottom graph) respectively:

5-sept-3a.jpg
5-sept-2b.jpg

It is clear from the above that September, on average, has historically been the worst month. However, stock markets recovered after that and October, November, December and January have traditionally been good months.

Time will tell whether the current panic mode will make way for a better period in the weeks to come.

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This article has 2 comments:

  •  
    Sep 05 05:27 PM
    This market is like no other market we have ever experianced since the 1930's...excess liquidity by investors that do not need their money is being relieved by our good market...yes you can now be sure that excess or surplus liquidity is what the market does. Its obvious to me that we are in a cycle where those that have too much liquidity is going to have a correction. So if you have too much liquidity, just stick around...those that feel that they are ok with liquidity are sitting on the sidelines. The market will always proved either surplus or excess liquidity. Where you are in the liquidity cycle is your business.
    Reply
  •  
    Sep 06 01:50 AM
    Yes. We do seem to be headed for a complete stock market melt-down, don't we?
    Reply
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