Heed Pudd’nhead Wilson’s Stock-Market Advice in September

You’re likely to hear from someone today that September is historically the worst month for stocks. You’re also likely to hear that this year could be different. Shortly before Oct. 1 you’ll know who was right.

At first blush, it sounds pretty scary. The Standard & Poor’s 500 Index has lost 1.02 percent on average in Septembers since 1928, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. It has fallen more than 52 percent of the time, second only to July in its tendency to decline. The two months are the only ones where stocks fall more often than rise, according to Silverblatt’s data.

September was known to be a leading barometer month in the first six decades of the 20th century, according to the “Stock Traders Almanac,” due to the start of the business year, the end of vacations and the back-to-school season. “Now portfolio managers back after Labor Day tend to clean house,” the 2014 edition proclaims.

Rosenblatt started his study toward the end of the silent-film era. Pushing the start date forward to the heyday of the drive-in movie changes things a bit. The average September decline shrinks to 0.5 percent if you start in 1950, according to the Almanac. That’s still the worst month and the only one that has had more down results than up in the past 63 years.

Narrowed down to the era when movies can be obtained from Netflix, the September underperformance disappears. The S&P 500 is up an average of 0.9 percent in the past 10 Septembers, according to data compiled by Bloomberg, making it the fifth-best month by return. It has risen in 80 percent of those Septembers, tying it with December for the months with the most advances.

‘Don’t Worry’

“Don’t worry about September seasonals this year,” is the title of a report from Oppenheimer & Co. strategist Ari Wald. “The worst September performances tend to occur in established downtrends.”

To wit: The S&P 500 has averaged a 0.4 percent gain in September when it’s above its average level over the last 200 days at the end of August as is the case this year, according to Wald. It has averaged a 2.7 percent loss when the index is below its 200-day moving average.

The best lesson to take away may be an old quote from the days when no one waited for the movie before reading the book. It’s from the market observer Pudd’nhead Wilson, as written by Mark Twain in the 1890s (Tip o’ the hat to strategist Jeffrey Saut at Raymond James Financial Inc., who mentioned it in a report today):

“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”

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