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September Was True to Form

By Joseph Lisanti When September arrived this year, things looked different. The market had advanced for six consecutive months, and stocks were blasting through previous resistance levels. But September ended up confirming its historical position as the worst month for stocks.

The S&P 500 index finished the month with a loss of 1.2%, in line with Septembers since 1928. Since 1950, the month has fared slightly better; the average September loss for the "500" over the last 54 years has been 0.7%. But in the last four years, September has been a feast for bears, with an average loss of 6.4%. Considering how investors have done in recent Septembers, last month wasn't too bad.

September has passed, and investors are perplexed about October. The month has become infamous for the October 19, 1987 crash, the biggest one-day point decline in market history up to that time, and the Friday-the-thirteenth plunge in 1989. Despite these dubious distinctions, October has seen an average gain of 0.3% in the S&P 500 since 1928 and is the start of what historically has been the best quarter of the year for stocks. This month started out strong, but so did September.

Mark Twain's comment may be appropriate. "October: This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February."

Twain was right. Speculation can be dangerous in any month. In recent weeks, some market participants have been latching on to the latest hot stocks without regard to their fundamentals. Professionals, who are hired and fired based on short-term performance, often initiate these momentum fads. But recent trading data suggest that individuals are again playing the momentum game. That could be a recipe for significant losses.

We continue to believe the market is going higher. But as the final days of September showed, it doesn't always go straight up. Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook

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