September is famous on Wall Street for strong seasonal cross currents. Some of them may even enjoy strong enough statistical and theoretical support to justify betting on them.
The Dow has been around for a lot longer than the period since 1975, of course, and September has been the worst average performer over that longer history as well. Since the benchmark was created in 1896, September has produced an average loss of 1.1%, versus a 0.8% average gain across all other months. September’s dismal relative performance has been remarkably consistent, furthermore: Its return rank relative to the other 11 months is below average in every decade since 1900 but one.
After years of my insisting that such a case doesn’t exist for stocks, a recent study in the Journal of Financial and Quantitative Analysis changed my mind. Entitled “Seasonal Asset Allocation: Evidence From Mutual Fund Flows,” the study was conducted by Mark Kamstra of Canada’s York University; Lisa Kramer of the University of Toronto; the late Maurice Levi of the University of British Columbia; and Russ Wermers of the University of Maryland.
Both a strong statistical and a strong theoretical case can therefore be made for why September may be a below-average month for stocks. While this doesn’t guarantee that the stock market will lose ground in this coming September, it does increase the probability that it will decline.There are reasons why gold should do well in September, but they’re weaker than the case for why stocks should do poorly.