When looking at stock market performance, it’s often said that one shouldn’t time the market. Simply invest as you go, one line of thinking holds, and over the long term you’ll be better off.
I don’t necessarily disagree with that. Nevertheless, it can be interesting to see what we can find in looking at historical stock trends, as this might uncover some learnings that could help us be better informed. One way to look at this, as we’ve done before here, is took at performance by month.
If you’ve been a long-time reader, perhaps you recall the post on the September Effect, where we looked at how the market has performed in the month of September. At the time, a retrospective analysis was done. It clearly showed that the numbers in the 9th month of the year are, on average, not that good. September is the worst month for stocks, based on taking monthly S&P 500 averages of the 40 years from 1971 to 2010.
It can be seen that over that time frame, there were only 2 months that showed an average market decline: February and September. February’s performance resulted in an average drop of 0.19%, while September was a much bigger decline of 0.77%. Think about it, that’s just for one month of the year, and it’s based on a sample size of 40 years.
As I presented the analysis of September stock performance in August 2011, I did note that this didn’t mean that it was a sure thing that the performance in each upcoming September would be bad. Rather, as I mentioned, that this trend was enough to at least make me take notice.
Well, in the month following that post, how did the stock market do? Looking back to last year, it’s revealed that the S&P 500 dropped 7.2% in September.
Was this a prescient post, or just a random, unexplainable occurrence?
Hard to say, as I didn’t predict that it would happen. But, as I again say, it was (and is again) enough to at least take notice.
Will this year be different? Will an election year bring on a more positive result? I’m not giving advice (see a pro for that) or making a prediction, so we’ll just have to find out. Again though, we do have this bit of knowledge of historical performance in the back of our minds.
My Questions for You
Do you like to utilize such historical data to help make decisions, or do you prefer to ingore and just invest on your own schedule?
What do you think about the September Effect?
Why do you think the market, over the last 41 years, has so clearly performed worse in this month than in any other month?