(With apologies to Earth, Wind and Fire.)
Do you remember
The investor pain of September?
Rates were changin’ the minds of share members
While chasing the bulls away.
OK, that’s enough butchering a song about the joy of memories and living in the moment — especially during this time of year and it’s sour memories for investors.
Thanks to Black Monday, both 1929 and 1987 versions, October has the reputation as the most awful month for investment portfolios. However, since 1945, September has the worst record for stock returns. This month is usually in the red.
Yet, as a whole, 2022 has not been a year many investors want to remember. The S&P 500 is back flirting with bear market territory as September begins.
There are few places in investors’ portfolios to find gains this year, so any selling in the month ahead won’t be subject to the “September effect.” That’s the theory that investors tend to sell stock during this month to lock in profits for the year.
Any September selling this year will be driven by fear, not greed.
Is that fear warranted? When it comes to portfolio performance, the answer doesn’t matter. The price of a stock is the price. Yet, for investor appetite for risk and consumer confidence, it is important to assess if any fear is justified by the economic data and corporate profit outlook.
That visibility has gotten cloudy again during this summer of resolve for the Federal Reserve. The central bank has two battlefronts: inflation and credibility. As autumn approaches, it needs to speak convincingly about fighting inflation with higher interest rates even if the economy shows signs of vulnerability. Memories remain fresh of the Fed’s belated recognition of inflation. Those aren’t pleasant memories for investors or consumers.
This may be a month to remember “dancin’ in September,” as the song suggests. Investors will be listening to hear if the rhythm of the economy and business is slowing down.
(And, how’s this for musical coincidence? The Fed’s next decision on interest rates is — wait for it — on the 21st of September.)
Ba-dee-ya.
