A Surprise September Rally

Wall Street Maybe In For A Surprise – A September Rally!

September – Normally a Terrible Month for the Stock Market?

by Ian Harvey


August 31, 2012


There seems to be a continual barrage of information in regard to how bad September is for the stock market -- historically September is being depicted as the worst month over the past 100 years. This tirade of prevarication goes so far as to sound something like this: “…..September is the only month that is negative going back 100 years on the Dow Jones Industrial Average (DJI) and for this very reason, you should get ready for some pain this September…..”

Certainly, things are rarely this simple but this could also mean that "the pain" is already priced into the market, which could give us a surprise with a September rally when no one is expecting it.




The September Truth!

So, is September really the horrible month that is going to erase all of the impressive gains we've seen so far this year? Well, from a longer-term perspective, September is definitely one of the more bearish months. In fact, going back 30 years on the Standard & Poor's 500 Index (SPX), it is the worst month.

September in the Past Five Years

However, looking at the past five years it's pretty much breakeven, and up three of the five months. It's not even close to the worst month – being the fifth strongest month out of the year. This does not provide an allusion of total bearish!

September During an Election Year

Now, this is an election year, and it pays to remember that sometimes this can be a game-changer. Below, shows what September has done for the stock market, with a Democrat in office over the past 30 years. Again, a 1.3% average return and up more than half the time isn't that bearish of an aspect!

Looking at all the September returns during an election year since 1972, and once again, September has a positive return. What is really worth pointing out, though, is when a Democrat is up for re-election, there have been some great returns. President Carter in 1980 and President Clinton in 1996 produced two of the best Septembers over the past 40 years.

The Mirror of September

Lastly, taking a quick look a monthly chart of the SPX, it appears that September tends to do what the months before it did. In other words, if momentum is taking charge -- September simply moves with the flow -- to continue upwards -- a September rally. Since there has just been an up July and now looking at an up August – it is of interest to see what happens when the two months before the "dreaded September" are both up. Going back to 1950, this has happened 18 times, and September checks in with a respectable 0.48% return. Now, it is only up 39% of the time, but its average return is still positive. Check out how bad September does, though, when those two months are down -- confirming that September tends to be a follower, not a leader.


Therefore, it is now up to you to determine your reaction to all the hype in regard to how “bad September” is -- and how the stock market could be due for a big pullback during this month – and how you intend to move forward.

My view, after breaking down the data, is that there could a nice surprise with a September rally!

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