Does This Market Look Familiar?

Stocks up to now have been flat and September is usually down, yet history suggests at least some gains by yearend

By Joseph Lisanti

We are now in what historically is the weakest month for stocks. Since 1928, September has experienced the fewest increases in the S&P 500 index, and the benchmark has lost, on average, 1.3%.

Why the ninth month is traditionally a loser for equities is open to conjecture. With vacation season over, investors may return home to reconsider the optimistic assumptions they made earlier in the year. Or stocks may be sold for more mundane reasons: paying tuition or buying new winter clothes for the kids. Whatever the explanation, September usually is not kind to investors.

The first eight months of this year have not been great either. The S&P 500 index closed on Aug. 31 down 0.7% for the year. In the history of the index, there have been only five years in which the "500" was essentially flat, up or down less than 1%, over the first eight months: 1998, 1992, 1949, 1947, and 1942. The market closed up for the year in four of the five instances; the sole exception was 1947 when the index finished unchanged. The best annual gain in these years was 26.7% in 1998, and the average advance was 10.8%.

We caution against giving too much credence to this rather small sample. Three of the five instances cited were more than a half century ago. The economy and the stock market have changed a great deal in that time. And the big winner in our group was 1998, one of the "bubble" years when outsized advances were as common as campaign speeches in an election.

Speaking of elections, the remaining year from our sample is 1992, a presidential election year. The average gain for the S&P 500 in presidential election years since 1932 has been 7.3%. But in 1992, like 2004 an election year with a flat stock market for the first eight months, the index rose only 4.5%.

Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook