After a traditionally quiet time for equities over the summer, things liven up for investors in September. But not necessarily in a good way – September is the worst month in the year for shares. Since 1982 the FTSE All Share Index has fallen on average 1.0% in this month. And since year 2000 the average month return has been even worse at -1.7%. Along with poor average returns the volatility of returns has been higher than any other month since 2000. Having said all that, the market has actually risen in September more times than it has fallen since 2000 – it’s just that when the market does fall it tends to be a significant decline. This can be seen in the accompanying chart which plots the percentage performance of the FTSE All Share Index for each September since 1982.
Interestingly, the UK market is far from unique in having a weak September. A recent academic paper announced the result of a study of the monthly performance of equity markets in 70 countries. The research found that on average the worst month for stock performance was September – on average shares rose only 0.07% across all 70 markets in this month, with September being the weakest month in 25 countries.
So, overall, not a rosy picture for shares in this month. And it is especially bad for mid-cap stocks. On average the FTSE 100 Index out-performs the FTSE 250 Index by 0.7 percentage points in September – making September, along with October, the worst two months for mid-cap stocks relative to the large-caps.
In an average month for September the market tends to gently drift lower for the first three weeks before rebounding slightly in the final week – although the final trading day (FTD) of the month has historically been one of the weakest FTDs of all months in the year.
In the last twenty years the sectors that have been strong in September have been: Pharmaceuticals & Biotechnology, Food & Drug Retailers, and Electricity. While the weak sectors have been: General Retailers, Chemicals, and Electronic & Electrical Equipment.
Dates to watch this month are: 1 Sep – NYSE closed (Labor Day), 4 Sep – MPC interest rate announcement, 5 Sep – US Nonfarm payroll report, 10 Sep – FTSE 100 Index quarterly review, 16 Sep – Two-day FOMC meeting starts, 19 Sep – Triple Witching.
Article first appeared in Money Observer
Further articles on September.