September Is the Stock Market’s Worst Month. History Says This Time Could Be Different.

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People walk past the New York Stock Exchange. (NYSE) at Wall Street

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The stock market usually performs poorly in September. This year could be different, precisely because shares have already risen so much for the year. 

September is usually one of the worst months of the year for the stock market, but shares do better at times when they have already done well. Over the years dating back to 1928, the average September return for the S&P 500 has been a loss of 0.99%. That makes the month far worse than May, which ranks second in providing gloom for investors with an average loss of 0.11%

History indicates that September 2021 could be a good month for stocks. In the years since 1928 when the S&P 500 rose by more than 13% for the first six months, the index’s median September gain was 1.4%, according to Fundstrat. Through June this year, the broad market benchmark rallied 14%.

The index rose in September in 63% of the years when the market charged ahead from January through June, while it fell during the month in 54% of the years during that overall span.

The stock market’s recent rise has bolstered hopes the index will do well for the rest of the year. Strategists at Wells Fargo recently lifted their target for the S&P 500 to a level that reflects more than 6% upside from the index’s current level. They say that in years in which the index sees double-digit gains in percentage terms for the first eight months, it rises another 8% to top off the year. The data goes back to 1990. 

The index closed Thursday at 4522.68, ending August with a year-to-date gain of 20.4%.

Just be aware that the ride upward could be bumpy. The S&P 500 hasn’t had a pullback of more than 5% this year. With several risks on the horizon, including a corporate-tax increase that could reduce aggregate S&P 500 earnings per share by 5%, stocks could see a correction.

“Markets are ‘overbought’ and due for a pullback,” writes Tom Lee, Fundstrat’s head of research. Just don’t be surprised to see the market gain some more. 

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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