Date: September 4, 2020

September Not as Bad Beneath the Surface – Ugly Stick Out in Full Force on Thursday

As the calendar has turned to September, let’s not forget all of the pundits who incorrectly warned about August being such a tough month. While there is nothing wrong with being wrong (I do it every day), there is a lot wrong when you are lazy and do not do your homework. Those who painted August with a broad brush just recited some stat they saw on Twitter. Instead, they should have been reading this blog and learning about the details of August in an election year.

I will admit that I was a little lazy regarding my homework so I waited an extra day to finish this when I had the data dissected. September has traditionally been the weakest months for stocks. And Thursday seemed to remind everyone of just how much hot air is under the NASDAQ 100.I wrote about it HERE.

However, all Septembers are not created equal. When the month begins with the stock market in an uptrend, September has delivered positive returns on average of roughly +0.50%. The percentages of up and down Septembers when beginning in an uptrend is just slightly better than a coin flip. In other words, investors should be happy with a breakeven month.

Let’s turn to election year Septembers since 1952. Obviously, 2008 was a very bad year and an outlier of -9.08%. That gives us an average of -0.16% for all election year Septembers, or +0.39% if we remove 2008. Since 1980 and excluding 2008, we get +1.15%, +0.70% since 1992. Those don’t seem so terrible.

Going one step further, let’s only look at years when an incumbent president is standing for reelection. With the exception of 1964, which was -4.55%, there has never been even a down 1% September. The average has been +1.20%. Since 1980, the average is +1.87% and +2.42% since 1990 although let’s realize that there are not that many occurrences.

None of these stats support the lazy person’s claim that September is an across the board bad month for stocks. There has to be some context to it. Yes, this September could be a down month after such a meteoric rise accompanied by pockets of giddyness and greed. But the data don’t support something really bad even though it’s 2020 so every day, week and month is anything but normal. Moreover, let’s stop blindly believing, just as I said last month, that the stock market is forecasting the winner of the election this far out. It’s not. Plain and simple. Incumbents lost in 1976, 1980 and 1992. September was positive all three times. August was mixed.

September got off to good start in the Dow Industrials, less so in the other indices. Then the NASDAQ 100 and the Fab Five Plus got hit with the ugly stick on Thursday which spilled over to the other indices. The media and pundits scrambled to find any piece of headline news to attribute the decline. Sometimes, stocks just do something for organic reasons. When the Dotcom Bubble peaked on March 10, 2000 there was not a single piece of news that caused the initial leg down. Buyers just got exhausted.

A client asked me if this could be the ultimate peak in mega tech. I will say this; if Thursday was the top like March 10, 2000, I will not say that I was shocked. That’s because the landscape has been fertile for a peak since mid-July. The data have supported a high for some time and eventually one of importance will come. While I do not believe the ultimate top has been seen, I am also not running to buy the NASDAQ 100 after one single ugly down day. Historically, there is usually the initial decline and then another rally attempt that fails. I am keenly interested in what happens on Friday as well as the next few weeks.

The Dow Industrials apear as though they want to lead along with large cap value stocks, something I have said before since the bull market began in March. I want to give them the benefit of the doubt for now. Remember, leadership can come by outperforming on the upside as well as the downside.

The most watched economic report of the month is due out at 8:30am today. I think a good plan is to buy early weakness, especially if we see a large down opening or sell early strength. Then you can reassess at the close ahead of the three-day weekend.

Thursday’s decline made sense. It was the first return to normalcy we have seen in some time. Let’s see how Friday and the coming few days play out. It would be disappointing for the bulls if they did not attempt a stand over the next few sessions. Once the markets get passed Labor Day, the election will be an almost daily discussion topic and there are plenty of trends to gauge what the market is pricing in for an outcome.


Paul Schatz, President, Heritage Capital