If the year were full of Septembers, the market would fall hard. Historically, the month is the toughest on stocks. But there's a silver...

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If the year were full of Septembers, the market would fall hard. Historically, the month is the toughest on stocks. But there’s a silver lining to this year’s outlook: the election.

Based on data since World War II, the Standard & Poor’s 500 stock index loses an average 0.63 percent in September, versus an average monthly gain of 0.69 percent, says S&P Chief Investment Strategist Sam Stovall.

But “since 1944, the euphoria surrounding the elections typically spilled onto Wall Street — helping the index record an uncharacteristically strong 4.4 percent gain during election-year Septembers,” he adds.

In research on the Dow Jones industrial average, Bespoke Investment Group finds Septembers typically see losses of 1.11 percent, based on 50 years of data. Gains were recorded just 35 percent of the time. “It’s just one of those things,” says Paul Hickey, Bespoke co-founder.

The lag is partly due to reports of corporate slowdowns and earnings warnings as businesses try to gear up after the vacation-heavy summer, he says.

Stovall blames lower capital flows, as contributions to retirement savings accounts typically max out by September. Tax refunds have already been invested or spent by this time, he adds.

Another factor is a reality check. “When the year starts off, people are optimistic about earnings for the next year,” Stovall says, but estimates typically decline through the year.

By the time the end of the third quarter rolls around, investors see things like they really are, he says.

In October, the S&P 500 averages a 1.08 percent gain, compared with gains of 0.97 percent in election years, says Stovall.

“September gets a better boost from the conventions, but October is pretty much on target with how it normally performs,” he says.

Hickey notes that market performance during election years from September through the end of the year tends to mirror performance in non-election years.