Historically, September has been a bad month for equities.
The S&P 500 Index has moved higher in September less than half the time since 1990, and the index is nearly one per cent lower when averaged out over that time span, something an expert says investors should keep in mind this time of year.
“September just tends to be weak broadly for most stock markets around the world,” Brooke Thackray, research analyst at Global X, told BNN Bloomberg in an interview Wednesday morning.
“Seasonality doesn’t always mean that the market is going to go down… it still can go up, but it just tends to be weaker. Since 1950, since 1990, over the last 20 years, over the last 10 years, it’s been the worst month of the year. When bad things happen, they tend to happen in September.”
Thackray said many investors take the summer months off and return to actively manage their portfolios in early September, often realizing they need to do some rebalancing.
“They come back, and they go: ‘Hey, this is a get real month, I have to clean up my portfolio, start to sell off a little bit to cover some of the debts,’” he said.
“Also, the analysts, they set their expectations for the year at the beginning of the year. They’re always optimistic, overly optimistic, and they have to start ratcheting back their expectations and they tend to do that around this time as we move into Fall.”
This combination tends to drive markets down noticeably in September, said Thackray, who noted that most of the weakness typically comes in the second half of the month.
“And there’s a reason for that… that’s the blackout period for stock buybacks. So, companies can’t buy back their shares, according to the (U.S. Securities and Exchange Commission), in the last two weeks before the end of the fiscal quarter,” he said.
“Buybacks have been a record, they’ve been going through the roof from companies, and this comes out of the market, which has been a huge driver pushing share prices higher, so that’s not going to be an impact, and it tends to help pull prices down in the last couple weeks of September.”
That period, on average, is the worst two weeks of the year for stock prices, said Thackray, but another expert says that isn’t necessarily a bad thing for investors.
“As a long-term investor, your best buys are when things are bad, not when things are good,” Ryan Bushell, CEO and portfolio manager at Newhaven Asset Management, told BNN Bloomberg during the same interview Wednesday.
“So, when you’re trying to make compounded annual returns for people, the lower you can purchase, the better off you are.”
Bushell added that seasonal trends must also be weighed against current technical signals as well as policy changes, including interest rate moves. The U.S. Federal Reserve and the Bank of Canada are each set to make their next rate decisions on Sept. 17.
