Stocktake: Another hazardous September for stocks?

September has historically been the stock market’s worst month. With the S&P 500 up seven months in a row, is it time for some seasonal slippage?

There’s no real reason why September should prove especially tricky. Still, it has proved difficult historically: it is the only month where the S&P 500 has tended to fall. Even during last year’s strong rally, notes LPL Research, stocks suffered a correction of almost 10 per cent in the middle of September.

Investors “should be open to some potential seasonal weakness”, says LPL, as we haven’t even seen a 5 per cent pullback since last October.

However, any weakness is likely to be a buying opportunity. There have been 14 previous occasions where stocks gained seven months in a row. Six months later, indices were higher on all but one occasion, posting median gains of 8.9 per cent.

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Looking at other years where the S&P 500 is up more than 15 per cent at the end of August, LPL found the final four months of the year have seen further gains the past five times, with the last three up 9.6, 7.9 and 10.4 per cent, respectively. Indeed, median returns in the final four months of the year after a great start are above-average.

In other words, any September slippage is likely to be temporary.