With all due apologies to T.S. Eliot, when it comes to stocks, April isn’t the cruelest month. That title goes, hands down, to September. Which my calendar says starts tomorrow.
September is, on average, the worst-performing month for stocks. From 1950 through 2021, the Dow Jones Industrial Average lost 0.8% a year on average. The Standard & Poor’s 500 during that period lost 0.5% a year on average. Recently, that is over the last decade, the technology-heavy NASDAQ 100 has taken the biggest damage with the index down an average of 0.6% during September, the only month of the year with a negative average.
No one is sure why the September effect exists. Some market experts put it down to selling by mutual fund managers before the end of their fiscal year on September 30 or October 31.
But whatever the cause–and the September effect can be seen across global markets–investors have been putting on bearish bets in preparation.
For example, clients at Bank of America were net sellers of US equities last week for a second straight week.
Options traders have been positioning for a negative month. According to Bloomberg, the number of outstanding bearish options contracts on an exchange-traded fund that tracks the Nasdaq 100 spiked on August 19 to the highest level since the aftermath of the Dot Com om bust.
Of course, at some point, this all becomes a self-fulfilling prophecy with positioning for a weak September creating a weak September.
But, I’d not that right now investors and traders have reason for some nervousness with a critical jobs report for August on tap for September 2, right ahead of the long Labor Day market holiday and with the Federal Reserve set to meet on interest rates on September 21. The CMEFedWatch Tool currently calculates a 68.5% chance that the Fed will raise interest rates by 75 basis points at that meeting. Those odds are up from 61% a week ago.
