Wake Me Up When September Ends?

That Green Day hit song is almost ten years old now, but it’s still playing on loop in many people’s heads when it comes time to flip the calendar page from August to September.

The headlines never fail to remind us that September is historically the worst average month for S&P500 stock returns so obviously it’s time to sell everything and focus on your fantasy team instead.

There are many possible reasons and circumstances for selling and going short. But “Because Labor Day is over” shouldn’t be one of them.

It’s true that as far back as we have reliable stock data, September is the only month where the S&P500 has had an average negative return (of -.67%).

It should be noted though, that that figure is skewed by a few large outliers from the Great Depression, including a nearly 30% loss in 1931 (ouch!) and an almost-14% decline in 1937. We younger Wall Streeters will also remember September 2008, with its 8.91% shellacking.

As we all know, in September 2008 a freak trading accident occurred, during which millions of investors were so blinded by the autumn sunlight that they all hit the “Sell” button instead of the “Buy” button, causing enormous losses and panic.

No it wasn’t! September 2008 was bad because one of the world’s largest investment banks suddenly went belly-up. September just happened to be the time when the Feds arbitrarily decided not to extend Lehman Brothers the same bailout they gave AIG (I’m still scratching my head on that one). Fundamentals were at fault, not timing.

The reasons we believe this market myth are the same as the reasons we believe in stuff like “Sell in May and go away” or “buy the Santa Claus rally.” It’s because our myopic brains are wired to continue looking for patterns even when there aren’t any. It’s all part of our effort to force a linear, predictable model onto a chaotic, noisy entity like the stock market.

Luckily, the reasons they aren’t true are also similar to one another: stock prices are based on forward expectations on corporate profits, not by what our calendars say. It doesn’t mean this September is absolutely going to be an up month. But even if it isn’t, there are 11 other months to consolidate gains, leading to a strong gain on the year.

And there is a lot of scary geopolitical stuff going on, the Syria situation being only one of them. Short-term volatility can really bite, but it seems the market has already priced in this fear, as it’s so widely known already.

Leave everything else on the beach and keep your head level. Though of course, if you miss a trade because you’re too busy admiring your fantasy team, that’s your fault!

For more on this phenomenon and why it’s bunk, check out this article from Fisher Investments’ Marketminder:

http://www.marketminder.com/a/fisher-investments-september-is-just-a-mo…