The enigma around September stocks
Sometimes you don’t have to wonder why some things happen, you just need to know that they do.
Some of you may have heard the saying, “When America sneezes, we catch a cold.”
I want to talk about the stock market and the month of September.
I have recently come across quite a few articles about what a consistently and notorious rubbish month September is for US stocks.
As a trader of local stocks and offshore indices, this piqued my curiosity and I thought I’d delve into this phenomenon because it does affect our markets.
The first astounding statistic I found was that since the Dow Jones Industrial Average was created in the late 1890s, September has produced an average loss of 1.1 per cent.
The 11 other months of the calendar, in contrast, have produced an average gain of 0.8 per cent.
In fact, September was a below-average performer in all but one of the dozen decades since the late 1800s!
After sifting through some historical data for a couple of days, I found my answer: no one knows why!
It is either the biggest stock market historical coincidence ever or it’s the biggest secret in US stock market history.
Nobody really knows … It just happens.
Some of the most popular hypotheses from US investors were:
•Investors are more prone to sell stocks when they return from summer vacation
•Many mutual funds have fiscal years that end September 30, leading them to engage in “window-dressing” during the month
•Investors are forced to sell equities in September to pay the sky-high tuition bills they’ve just received from their kids’ private schools and colleges.
The problem with these, or even all of them put together, is that if they truly were directly responsible for the dismal September performance of stocks then any US investor would sell out of their stocks before it happens.
So that would imply that they would then sell in August and if everyone knew that, then there would be selling in July (in case the selling starts early).
I think you can see where I’m going with this…
But what about the effect on us?
I’ve been selling our market for months.
Maybe it makes me feel better about my short position but I buy to this historical trend and quite frankly I don’t really need a reason as to why this phenomenon occurs.
All I have to know is that the odds are overwhelmingly in favour of a September decline in stocks.
I do however consider relevant economic threats that could contribute to a declining market.
If you are looking at entering our stock market now, I would hang on and see how this month plays out – and here’s why.
US markets have just set all-time highs.
How can you expect new money to enter markets at these lofty (and over-valued) levels?
The Rand is slipping and that’s not good.
Political uncertainty here at home is making investors nervous.
But the American “sneeze” and our “cold” at the moment is fear of rising US interest rates.
The Dollar has had its strongest rally in months and that is not good for emerging markets like ours.
A strong Dollar puts pressure on commodity prices South Africa cannot afford right now.
If the US market has a little correction, I expect our market will follow suit.
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