Worried about a September swoon for stocks? Don’t Be. Here’s why.

With the market down sharply — and measurably — just since late August, investors are understandably worried that September could live up to its bearish reputation. It is one of the three months of the year in which S&P 500 it tends to lose ground, but with an average loss of nearly 0.9%, it’s also the most painful of the three. Depending on the year, this month fared much worse. This is what makes this year’s early September weakness so worrying; it could be a harbinger of things to come.

However, before you lose all your stocks in panic, you may want to look at all the relevant information about this phenomenon. The best course of action here is arguably to do nothing but ignore what looks like the start of a predictable September swoon.

September market statistics

For the record, there is some truth to September being a bad month for stocks. Since 1950, the S&P 500 has lost ground in 42 of the last 74 Septembers, and has rallied in just 32 of them. The average down year loss of 3.75% is also greater than the average up year gain of 3.25%. Indeed, going back a century, this ill-fated month loses ground more often than it gains.

Some of this trend and its sizable average losses can be coincidentally attributed to unfortunate timing. For example, both Septembers after the dot-com bust of the 2000s were tough, but not because the implosion of so many young Internet companies just happened to take shape in the fall of those years. The brunt of the subprime mortgage meltdown of 2008 was also felt in September of that year, but it could just as easily have happened any other month.

That said, there is something about the calendar that may play a role in this month’s problems. Back when agriculture was one of the largest industries in the US, then crop yields for a given year would begin to become clear, potentially putting pressure on banks involved in agriculture. Since then, it has been theorized that the end of the summer holidays allows investors to start looking more closely at their portfolios, pricing in any bad news that may have been overlooked until then. It should also be noted that while the US government’s fiscal year officially begins in October, the budget begins to be drafted in the preceding weeks.

All of these factors (and more) may or may not still apply, but to whatever extent they ever did, they are now likely a driving force behind a self-fulfilling prophecy that usually turns September into a losing month.

Just don’t let any of these drive you into a short-term decision about your long-term positions.

The rest of the story

Although September is down more often than it is up, there’s a noteworthy detail buried in the data that’s worth pulling out. That is, most of the sell-offs in September were followed by similarly large rallies in October.

The numbers: In 28 of the 42 September crashes seen since 1950, the S&P 500 actually posted a gain the following month. The average performance between the beginning of September and the end of October over this 74-year period, in fact, is actually a modest gain of 0.14% for the two-month period. Since 1950, there have only been 29 times when the September-October timeframe has left the S&P 500 below Rather than HIGH at the end of it. Indeed, in some of its worst years, the index bounced back from a terrible September with a great October.

Data source: Collected by author from MoneyChimp. Chart by author.

More directly, whatever unhappiness is usually distributed in September is usually unleashed the following month (and vice versa, by the way).

Things get even more promising when you expand this time frame. For the six months between the beginning of June and the end of November, the S&P 500 has lost ground just 26 times since 1950, compared to gains in 48 of those years, posting an average gain of 1.76% despite the occasional selloff.

Of course, a few of these cases were still pretty tough. However, there are also cases where extraordinary circumstances have arisen not necessarily related to the time of year… like being in the middle of a bear market! These very “off” years include the subprime mortgage disaster of 2008 and the aftermath of the so-called “Black Monday” event of 1987. Before that, the last time the entire fall was a downright horrible time for the market was in 1973, when we were in a recession-driven, inflation-ridden bear market.

Besides being unpredictable, such routes are also rare. Trying to anticipate them often does more harm than good, pulling you out of the stock market when you should be staying in it.

Remember: this is still a big, long-term thing

This year could be one of the exceptions, of course. That said, September and October could turn out to be back-to-back terrible months for the broad market. Never say never.

From a bookmaker’s perspective, however, this is unlikely to be the case. Statistically speaking, any weakness experienced in September may be only a mild nuisance, that nuisance giving way to the usual year-end optimism that usually begins to take shape in the second half of October. The main causes of catastrophic Septembers are simply nowhere on the horizon, the key contrarian optimistic indicator is that at least some economists recognize the risk. The truth is that most bear markets and recessions start when most people least expect them.