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- September 20-25 is the window in which investors have least chance of making money on US stocks, one veteran trader says.
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In the last 30 years, on average, the S&P 500 clocks its worst performance in September, while April witnesses the best.
- The coronavirus pandemic, uncertainty over the US election and volatile technology stocks could exacerbate the “September effect”, AxiTrader’s Stephen Innes says.
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The S&P 500 has fallen for three straight weeks, and things may be about to get tougher, considering that this week the “bear window” is open, when investors have the least chance of making money on US stocks, one veteran trader says.
On average, over the last 30 years, September has been the worst month in the year for S&P bulls, with a decline of around 0.32%, compared with April, when the index has registered an average gain of 2.1% since 1990.
Welcome to the 20-25 September bearish window, where 30 years of evidence says to expect five days of pain, Stephen Innes, a veteran trader and chief global market strategist for brokerage AxiTrader, says.
“Based on data gathered from over the past 30 years, the 20th to 25th September is the five day window in which you have the least chance of making money in US stocks,” he said in a note on Monday.
The so-called “September effect” is, generally speaking, an anomaly and is not related to any external market event. The last few years of extreme investor bullishness and, particularly this year, given the trillions of dollars in fiscal stimulus that have flown in unprecedented amounts into the equity market, have mitigated this phenomenon somewhat.
Over the last 10 years, September has still been the month of poorest performance by the S&P, when it has just scraped into positive territory, with an average gain of 0.04%, compared with a gain of 2.5% in July.
However, in the last five years, excluding this year, the honor of “Worst Month” has shifted to August, with an average decline of 1.02%, while July once again is the top performing month, with an average gain of 2.5%.
This year, investors are contending with an uncertain presidential election under two months away, a Federal Reserve that is showing no immediate signs of injecting any more stimulus into the financial system, and rocky technology stocks, which have been by far the worst performing sector so far this month.
The SPDR Select Technology exchange-traded fund, a proxy for the US tech sector, has lost almost 9% so far this month, as investors have booked profits on double- and sometimes treble-digit gains in stocks such as electric carmaker Tesla, iPhone maker Apple and online retailer Amazon. This compares with a 6.3% fall in the S&P 500 itself.
“The Fed story is stale as week-old bread, and their balance sheet hasn’t grown since June. At the same time, the fiscal storyline is stuck in the swamp,” Innes said.
“Compounding matters, we’re also on the precipice of traders and risk managers starting to fret about US election risk. There’s a remarkable tendency for fear to build, and volatility rises about four to six weeks before voting events, even if we’ve talked about them for months ahead,” he said.
With a number of factors stacking up, this year’s “September bear window” could be more severe, he said.
“There’s always a bit of a panic attack around these kinds of events, and this one could be worse when viewed through the coronavirus lens,” Innes added.
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