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Will Labor Day be a Turning Point for the Markets?

It's been a tough year for the markets so far with the Dow, S&P and Nasdaq down 13%, 13% and 10% respectively on a year-to-date basis. How will things look when everyone comes back from their vacations and the holiday weekend and volume begins to pick up again?

Historically, July and August and have been amongst the better performing months on average for the Dow and S&P . September, on the other hand, is the worst month for all three major indices (see chart).

In fact, the Dow and S&P have only been positive for the month of September just over 40% of the time (December, by comparison, has been positive ~70% of the time). So does this change for the years when the indices are down YTD going into Labor Day?

Unfortunately, the story gets worse for the Dow and S&P. When an index has been down from January through August, the rest of the year is bleak as well. The Nasdaq seems to be the bright side of the story and has faired better, especially in the fourth quarter, albeit with a smaller sample size. Here is the breakdown for each of the major indices when they have been down YTD going into Labor Day:

Dow Jones Industrial Average (42 occurrences):

  • Labor Day to New Years - average loss of -3.29%, down 55% of the time, and up 45%
    • Biggest % gain of 21.78% in 1998
    • Worst % loss of -44.12% in 1931
  • September performance - average loss -3.07%
    • Biggest % gain of 12.44% in 1916
    • Worst % loss of -30.7% in 1931
  • October performance - average loss -0.04%
    • Biggest % gain of 10.6% in 2002
    • Worst % loss of -14.8% in 1907
  • November performance - average gain 0.01%
    • Biggest % gain of 10.26% in 1934
    • Worst % loss of -14.04% in 1973
  • December performance - average loss -0.4%
    • Biggest % gain of 10.78% in 1903
    • Worst % loss of -23.58% in 1914

S&P 500 (27 occurrences):

  • Labor Day to New Years - average loss of -1.28%, down 44% of the time, and up 56%
    • Biggest % gain of 28.38% in 1998
    • Worst % loss of -41.92% in 1931
  • September performance - average loss -3.58%
    • Biggest % gain of 14.4% in 1939
    • Worst % loss of -30.5% in 1931
  • October performance - average gain + 1.67%
    • Biggest % gain of 16.3% in 1974
    • Worst % loss of -10.3% in 1937
  • November performance - average gain 0.48%
    • Biggest % gain of 10.16% in 1962
    • Worst % loss of -11.4% in 1973
  • December performance - average loss -0.28%
    • Biggest % gain of 5.6% in 1998
    • Worst % loss of -13.1% in 1931

NASDAQ Composite (14 occurrences):

  • Labor Day to New Years - average gain of +8.25%, down 36% of the time, and up 64%
    • Biggest % gain of 46.3% in 1998
    • Worst % loss of -12.1% in 1973
  • September performance - average loss -1.7%
    • Biggest % gain of 13.0% in 1998
    • Worst % loss of -17.0% in 2001
  • October performance - average gain + 5.45%
    • Biggest % gain of 17.2% in 1974
    • Worst % loss of -4.3% in 1990
  • November performance - average gain 3.92%
    • Biggest % gain of 14.2% in 2001
    • Worst % loss of -15.1% in 1973
  • December performance - average loss -0.28%
    • Biggest % gain of 12.5% in 1998
    • Worst % loss of -9.7% in 2002

One lesson you may take from this is to "always remember, sell in September." However, keep in mind these are just averages and every year is different. The good news is there are still winning stocks out there. For the Dow, six of its components are positive YTD, two of which are up over 10%.

  • Wal-Mart Stores Inc , Up 24.74%
  • International Business Machines Corp , Up 14.14%
  • Johnson and Johnson , Up 6.76%
  • McDonald's Corporation , Up 5.38%
  • Home Depot Inc , Up 0.85%
  • E I du Pont de Nemours and Co , Up 0.57%

Comments? Send them to bythenumbers@cnbc.com

bythenumbers.cnbc.com

Symbol
Price
 
Change
%Change
DJIA
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S&P 500
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DD
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HD
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IBM
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JNJ
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WMT
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MCD
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