As September goes…

With the S&P currently up 3% for the month of September, now’s a good time to remember that September is a pivotal month in terms of the market’s performance in Q4. When the S&P fails to rally in September, it sets up the potential for some ugly finishes to the year. That was the case in 2008, as well as during the 2000-2002 decline, the ’87 crash and throughout most of the 70?s trading range. But when the market rallies in September, it tells you that in all likelihood, a classic year-end rally is forthcoming. Consider that an ‘up September’ has a strong track record at calling for a subsequently higher monthly close by the end of the year. Going back to 1950, there have been 27 years in which the S&P500 closed out the month of September with a gain. In 25 out of 27 years, the S&P proceeded to post a subsequently higher close within the next three months, and typically within 1-2 months…

When the S&P500 Rallies in September
09/30/09… S&P500 +3.6% two months later
09/28/07… S&P500 +1.5% one month later
09/29/06… S&P500 +3.2% one month later
09/30/05… S&P500 +1.7% two months later
09/30/04… S&P500 +1.4% one month later
09/30/98… S&P500 +8.0% one month later
09/30/97… S&P500 +0.1% two months later
09/30/96… S&P500 +2.6% one month later
09/29/95… S&P500 +3.6% two months later
09/30/92… S&P500 +0.2% one month later
09/30/88… S&P500 +2.6% one month later
09/30/83… S&P500 +0.2% two months later
09/30/82… S&P500 +11.0% one month later
09/30/80… S&P500 +1.6% one month later
09/30/76… S&P500 +2.1% three months later
09/28/73… S&P500 -10.0% three months later (*)
09/30/70… S&P500 +3.4% two months later
09/30/68… S&P500 +0.7% one month later
09/29/67… S&P500 -0.3% three months later
09/30/65… S&P500 +2.7% one month later
09/30/64… S&P500 +0.8% one month later
09/30/58… S&P500 +2.5% one month later
09/28/56… S&P500 +0.5% one month later
09/30/55… S&P500 +4.2% two months later
09/30/54… S&P500 +6.0% two months later
09/30/53… S&P500 +5.1% one month later
09/29/50… S&P500 +0.4% one month later

This same setup can also be utilized in a slightly longer-term format by simply looking at how the S&P performed over the next three months (until the end of the year.) This has more telling implications for the market’s long-term performance as it tells you if the gains are typically sustainable through year-end. As the table below illustrates, the gains are indeed sustainable in the majority of cases. Again looking at the 27 years since 1950 in which the S&P rallied in September, we find that the S&P was trading at an even higher level at the end of the year in every case but four. And in two out of the four years the S&P failed to settle higher at year-end, it was down less than 1% compared with its September settlement. So really, there were only two years out of twenty-seven in which an ‘up September’ truly failed to lead to any end-of-year strength…

When the S&P500 Rallies in September
09/30/09… S&P500 +5.5% at year-end
09/28/07… S&P500 -3.8% at year-end (*)
09/29/06… S&P500 +6.2% at year-end
09/30/05… S&P500 +1.6% at year-end
09/30/04… S&P500 +8.7% at year-end
09/30/98… S&P500 +20.9% at year-end
09/30/97… S&P500 +2.4% at year-end
09/30/96… S&P500 +7.8% at year-end
09/29/95… S&P500 +5.4% at year-end
09/30/92… S&P500 +4.3% at year-end
09/30/88… S&P500 +2.1% at year-end
09/30/83… S&P500 -0.7% at year-end
09/30/82… S&P500 +16.8% at year-end
09/30/80… S&P500 +8.2% at year-end
09/30/76… S&P500 +2.1% at year-end
09/28/73… S&P500 -10.0% at year-end (*)
09/30/70… S&P500 +9.3% at year-end
09/30/68… S&P500 +1.2% at year-end
09/29/67… S&P500 -0.3% at year-end
09/30/65… S&P500 +2.8% at year-end
09/30/64… S&P500 +0.7% at year-end
09/30/58… S&P500 +10.3% at year-end
09/28/56… S&P500 +2.9% at year-end
09/30/55… S&P500 +4.1% at year-end
09/30/54… S&P500 +11.4% at year-end
09/30/53… S&P500 +6.3% at year-end
09/29/50… S&P500 +4.9% at year-end

Categories : Archived EOD Commentary, End-of-Day Commentary

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