September Is The S&P 500’s Worst Performing Month!

While August was a shaky month for investors, it could just be a warmup for September. Traditionally, that ninth month, which is just a few days away, has been the very worst month in which to invest in stocks, according to a recent data analysis from New York-based analytics company CFRA.

“We remind investors to prepare for the possibility of disappointing results for boht the S&P 500 and Nasdaq in the month ahead,” the report states.

On average since 1945, the S&P 500 falls 56% of the time in September, making it the only month which is more likely to see a drop than an advance of any kind, CFRA research states. The average S&P 500 return is minus 0.73%, the worst of any month.

That also means the SPDR S&P 500 exchange-traded fund, which tracks the S&P 500 index, would fall in tandem also.

Likewise the Nasdaq composite has a tough time in September. The index rallied only 52% of the time over the period starting January 1, 1971, the lowest of any month, and the average return of minus 0.86%, again the worst performing month. again the data is from CFRA.

Its not all bad. CFRA says there will likely be potential sub sectors of strength and weakness. The best performing sub industries in the S&P 1500 are Footware, Household products, and Life & Health Insurance, according to the analysis. They outperformed the S&P 1500 1500 index 71%, 71% and 68% percent of the time, respectively, the research note says.

The report highlights show producer Crocs
CROX
Inc. (CROX,) household product company Colgate-Palmolive
CL
Company (CL) and insurance firm MetLife
MET
(MET) as some of the representative companies in the outperforming S&P 1500 index sub sectors.

What should investors do?

However, while that information on outperforming sub sectors is certainly useful for the professional trader or portfolio manager, there is another way to look at the worst month of the year.

• First, it does deliver gains 44% of the time. That means it doesn’t have to be a catastrophe for investors.
• Second, buy low and sell high has long been a key Wall Street maxim. However, if the market generally trends up its hard to buy low. The maxim tends to get distorted into buy high and sell even higher. The latter can work, but its not optimal.
• Third, the savvy investor with cash to spare might want to consider using any potential market pullback in September to buy more stocks at favorable prices.
• Forth, dollar cost averaging might be a better approach for many investors. This involves investing a set amount of money regularly. That can be done through a payroll deduction and placed directly into a 401K retirement account. While this strategy means you never get the best average price for your investments, it also means you never get the worst average price.
• Fifth, long term investors shouldn’t worry too much. As long as the U.S. sticks to its long standing business friendly regime, the market will continue to trend upwards over extended periods. Any down draft in the coming month will likely be quickly forgotten or look like a blip in the rearview mirror.