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John Manley

September has a history, but it may not matter

AdvantageVoice® Blog—9-9-13
John Manley, CFA, Chief Equity Strategist

Well, it is September, and there are a lot of things to worry about. While Syria may or may not heat up soon, it is unlikely to simply go away. The Federal Reserve could let us know if it is taking the first cautious steps toward an end to quantitative easing. The budget has to be adjusted soon, and that is seldom an uneventful process. And, as I said before, it is September.

When it comes to bad months to own equities, October gets the headlines (because of the Crash in 1987), but on average, U.S. stocks have tended to rise in October. No, September is the stinker for stocks. Since the beginning of the second half of the twentieth century, the average September has produced a price decline of 57 basis points (bps; 100 bps equals 1.00%) for the S&P 500 Index. That is more than a full percentage point below the 80-bp average monthly gain for October through August in that same period.

That may not sound like much, but compound it over 63 years and it starts to add up. Investors who invested $1,000 into the S&P 500 Index at the end of 1949 would own a bit more than $86,000 worth of it at the end of last year, even if they did not reinvest dividends. However, if they (somehow) were able to avoid all of the Septembers in that period, their stock would be worth about $125,000 at year-end 2012. That is a pretty big difference.

I used the word somehow in the preceding chapter because ducking out of the market every September would be a rather impractical scheme. I don’t think that people can cherry-pick their months like that, and I don’t think they should try. There has been a steep opportunity cost for guessing wrong on these things.

Between December 1949 and December 2012, in the course of 756 months, the S&P 500 Index rose at an annual rate of 7.3%. That is not bad. However, if you somehow missed the 56 best months in that period, you would have had no gain at all. That is less than 8% of the months and fewer than one a year. If you missed the five best months, your terminal S&P 500 Index value dropped from $86,000 to under $47,000. If you missed the best 10 months, it was a bit above $28,000, and if you missed the best 20 months, it was under $13,000. In my opinion, that’s a lot of gain to forgo because you guessed wrong on stocks in a few months.

All of these historical statistics should be taken with a grain of salt. They are gleaned from the past, and after all, we are going to be living and investing in the future. They are guides and reference points, but they, in themselves, are hardly dispositive. However, I will finish with one more data point that puts the September swoon in a more complete context. When thinking of September’s poor record since 1949, remember that, in that same period, over the next four months, the S&P 500 Index rose, on average, about 5.5%.

It would seem that good things come to those who wait.

Past performance is no guarantee of future results. You cannot invest directly in an index.

The views expressed are as of 9-9-13 and are those of Chief Equity Strategist John Manley, CFA, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.

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