(BFM Bourse) – September is traditionally the worst month of the year on the stock market, more so than October, which was nevertheless marked by the major crashes of the modern period. Above all, the second half of September is statistically tainted by a less than glorious reputation.
The Stock Market and Seasonality. And who better than Mark Twain, creator of the characters Tom Sawyer and Huckleberry Finn, to mock this phenomenon in the best possible way. According to the famous American writer (who himself had made a number of disastrous investments), October is one of the most dangerous months to play the Stock Market, the other risky months being July, January, September, April, November, May, March, June, December, August and February.
But this joke masks a completely real seasonal phenomenon (and quite unexplained in light of modern financial theory, which would have it that market inefficiencies are smoothed out over time): no, not all months are equal on the stock market.
Statistically speaking, certain periods – typically during the summer – are generally less profitable than others. Winter is usually more favorable with the Halloween effect.
And in this month of September, the question naturally comes back to the forefront. Especially since this ninth month of the year started on a bad note, with the CAC 40 losing 3.65% in the first week. The same goes for the Dow Jones (-2.93%) or the S&P 500, which fell by more than 4%.
The reasons for the September effect
“This month of September started in the red, as is historically the case for this back-to-school month. Operators are increasingly worried about American and Chinese growth, which has caused massive sales in the technology sector as well as the luxury sector,” recalled Antoine Fraysse-Soulier, head of market analysis at eToro.
This agitation that has reigned on the world stock markets therefore seems to give credence to the bad reputation of this back-to-school month. “It is the worst month of the year, the S&P 500 has lost an average of 0.87% in September since 1950. November, on the other hand, is the best month, since the S&P 500 has gained an average of 1.63%”, recalled at the end of August, John Plassard, investment specialist at Mirabaud & Cie, in the program “BFM Bourse” of BFM Business.
Among the reasons that explain this historic underperformance of the indices during this ninth month of the year, John Plassard recalls the seasonality of this phenomenon, with investors who “often take their profits at the end of the summer”. The specialist also cites tax reasons for American mutual funds, or “mutual funds” which cash in their assets to recover their tax losses, since these establishments close their financial year at the end of September.
“What is very interesting to note, and we will see if this observation is confirmed this year, is that the last two weeks of September are the two worst of the year,” adds the specialist.
This period will be all the more interesting to follow, notes John Plassard, to the extent that investors will learn about the latest monetary policy meeting of the American Federal Reserve (Fed), this coming Wednesday. It should result in a first rate cut, and this initiative would “not be very well received in the short term by the markets”, according to the Mirabaud & Cie specialist. Other central banks will complete the agenda for this second part of this month, such as the meeting of the Bank of England, that of Japan or even the Swiss National Bank.
A risky second part of September
John Plassard is not the only market expert to have warned of the risky nature of the second half of September. Gilles Guibout, head of European equities at AXA IM also recalled the underperformance of the S&P 500 over the period on air on BFM Business’s “BFM Bourse”.
“The S&P 500 has achieved an average performance of -0.5% in the second week of September, which is the worst period of the year,” he says. Generally, the following fortnights have been, since 1950, on average positive. The markets are “in a period of uncertainty with the upcoming elections in the United States, so there is little reason to be optimistic for the next fortnight,” continues the market specialist. “Statistics tell us that it is urgent to be cautious over the next fortnight,” he warns.
However, Gilles Guibout believes that this market risk could give rise to opportunities to make cheap purchases. “The drop that could occur could be used to make end-of-year purchases,” he notes. And therefore to take advantage of the Halloween effect, which implies that the period from November to April offers the greatest potential for growth on the financial markets.
Sabrina Sadgui – ©2024 BFM Bourse
