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For Investors, September Is the Cruelest Month

Stock investors are bracing for a bad September -- knowing it has a well-deserved reputation for being the worst month of the year.

Since 1929, stocks have declined an average 1.2% in September, compared with an average gain of 0.59% during all months of the year.

"There's been a frequency of negative numbers," says Sam Stovall, chief investment strategist at Standard & Poor's. "September is the only month in which it falls more than it rises."

Average Monthly Performance of the Dow (1896-2007):

MONTH
% POSITIVE
% NEGATIVE
AVG % RETURN
Dec 71.6 28.4 1.4
Jan 64.9 34.2 1.1
Aug 63.6 36.4 1.2
Nov 61.5 38.5 1.1
Jul 60.7 39.3 1.3
Mar 60.4 39.6 0.7
Oct 59.1 40.9 0.3
Apr 55.9 44.1 1.1
May 51.4 48.7 0.1
Feb 50.5 49.5 -0.2
Jun 50.0 50.0 0.4
Sep 40.9 59.1 -1.2

Why is September so bad? Part of the reason is a seasonal slowdown of money flowing into the market, so there's less new money to push up prices. In addition, Stovall says some mutual funds "have October as fiscal year-end, and may be selling losing positions from mid-September until mid-October."

Tense This Year

This September is likely to be particularly volatile on Wall Street. A wave of mortgage defaults has sparked a worldwide credit crunch, forcing the Federal Reserve to reassure nervous financial markets with a discount-rate cut and additional liquidity.

On Friday, Federal Reserve Chairman Ben Bernanke said the central bank is ready to step in again to shelter the economy from turmoil in financial markets. But he said the Fed won't bail out investors who made mistakes.

That left many investors wondering if the Fed will cut the federal funds rate at its Sept. 18 meeting, as many hope. But there's also concern that if the central bank is forced to cut rates, it means the housing and credit crunch are worsening and could push the economy into a recession.

"If a rate cut happens, it will be because things deteriorate dramatically," says Michael Panzner, a Wall Street trader and author of the book Financial Armageddon. "The Fed is managing in text book fashion and doesn't want to go back to the Greenspan days of quick rate cuts and that will weigh on perspective."

There's also a worry about a slowdown in consumer spending, the main driver of the U.S. economy. Although Americans are continuing to spend, many retailers are forecasting a weak back-to-school and holiday shopping season.

Due for Down Month

"We’re due for another down month--fundamentals bear that out," says Panzner. "Earnings are always a cyclical phenomenon and that will dovetail well with what we’ll see on the ground with back to school sales."

"The refocus again will be on the consumer next month, which will lead to more questions about recession," Panzner adds. "We're going into September with wariness over where the next shoe is going to drop."

There is one positive note among the gloom: stocks have actually gone up the past three Septembers. Last year alone, the S&P 500 rose more than 2% during the month after the Fed stopped raising interest rates.

Stovall says more investors also have become aware that Septembers are traditionally bad and have panicked less.

"A pessimist would say it's time to bail out of the market," he says. "But the person who sees the glass as half full would reason that stocks go up over the long haul."

Average Monthly Performance of the Dow (1896-2007):

MONTH
% POSITIVE
% NEGATIVE
AVG % RETURN
Dec 71.6 28.4 1.4
Jan 64.9 34.2 1.1
Aug 63.6 36.4 1.2
Nov 61.5 38.5 1.1
Jul 60.7 39.3 1.3
Mar 60.4 39.6 0.7
Oct 59.1 40.9 0.3
Apr 55.9 44.1 1.1
May 51.4 48.7 0.1
Feb 50.5 49.5 -0.2
Jun 50.0 50.0 0.4
Sep 40.9 59.1 -1.2

Average Monthly Performance of the NASDAQ (1971-2007):

MONTH
% POSITIVE
% NEGATIVE
AVG % RETURN
Jan 69.4 30.6 3.5
Nov 68.6 31.4 2.1
Mar 62.2 37.8 0.3
Apr 62.2 37.8 1.1
May 59.5 40.5 1.1
Jun 59.5 40.5 1.2
Dec 57.1 42.9 1.9
Aug 52.8 47.2 0.3
Sep 52.8 47.2 -0.9
Oct 52.8 47.2 0.6
Feb 50.0 50.0 0.4
Jul 46.0 54.1 -0.4

Average Monthly Performance of the S&P 500 (1928-2007):

MONTH
% POSITIVE
% NEGATIVE
AVG % RETURN
Dec 73.1 26.9 1.4
Jan 65.8 34.2 1.5
Mar 61.3 38.8 0.4
Apr 61.3 38.8 1.1
Oct 59.5 40.5 0.5
Nov 59.0 41.0 0.9
Aug 58.2 41.8 0.8
Jun 56.3 43.8 0.9
Jul 56.3 43.8 1.4
May 56.3 43.8 -0.1
Feb 51.3 48.8 -0.1
Sep 43.0 55.7 -1.2

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