Arrival of September traditionally heralds fall in stock market
German elections mean next month won’t be an exception to pattern that can be traced back to 1896
September 2008 will remain long in the mind, not just for the collapse of Lehman Brothers but also because of the crisis in the Irish banking system. Photograph: Mary Altaffer/AP
If May is the month to sell your shares and “go away” could September be the month to buy back into the market? And if you haven’t sold yet, should you do so before the arrival of autumn and potentially lower stock prices?
As Proinsias O’Mahony pointed out on these pages last week, global stock markets have typically performed poorly in September, with a consistent negative bias not just in the US, but also across Japan, Germany and the UK.
Indeed, the S&P 500 has posted its worst monthly return in September whether you go back to 1990, 1970, 1945, or 1928, while the Dow Jones Industrial Average has shown a statistically significant negative bias in September, all the way back to 1896.
The reasons for this are varied, ranging from US fund managers closing out of stocks after Labor Day and taking profits from their better performing stocks, to a return to economic interference after a quiet summer.
For Irish investors, September 2008 will remain long in the mind not just for the collapse of Lehman Brothers but also because of the near collapse of the Irish banking system.
While September 2012 escaped the trend, thanks to better-than-expected support from the US Fed which held up US markets, this September may be no different, with upcoming elections in Germany set to reintroduce volatility to the European market, while tapering ahead of September’s Federal Reserve meeting may also subdue the market. And this time around, investors might have more to lose, given the upwards trajectory of markets over the past four years.
So what should you do?
Russ Koesterich, global chief investment strategist with index fund specialist iShares, advocates a “more defensive” approach heading into the autumn.
“I would consider lightening up on parts of the market that look particularly extended year-to-date such as US small caps and US retailers,” he advises, adding that investors might also look to investments that offer the potential for downside protection such as minimum volatility funds, mega-cap funds, and international dividend funds.
“We believe that buying a share on the stock market should always be viewed as buying a piece of a business. The purchase should only be made if the price is sufficiently attractive relative to a conservative and credible valuation of the business. No business person would make the decision to sell their business based on a date in the calendar,” he advises.
“For the same reason, no investor should make a decision to buy or sell a share on the stock market based on a date in the calendar,”he adds.
Should you take your profits?
Regardless of seasonal trends however, if you have put money into the markets over the past few years and made a substantial gain on your money, you might be thinking that now could be a good time to take your profits and get out of the markets.