September has arrived again. For market participants it is not only the time to return to their offices after summer vacation, but also the time to experience a great deal of anxiety. Many investors know perfectly well that September is the worst month for financial markets in terms of performance (see the picture below). Some investors are familiar with the expression, “Sell in May and Go Away”. Most investors have also heard of the Christmas rally in November and December too.
Still, there is no unambiguous rational explanation for all these recurring calendar anomalies. Perhaps people are reducing their exposure to stocks in May before the start of the summer vacation season. Who wants to constantly check stock quotes while lying on the beach? Probably the end of the summer vacation season in September, less sun, and more rain are the reasons why many investors experience episodes of sadness, worry or even outright depression. At the same time, Christmas preparations and New Year’s resolutions are likely to improve your mood and boost your optimism.
In any case U.S. stock market monthly performance can be described as follows:
January = New Year’s Resolutions: New stock portfolio allocations and festive optimism
February = Post-Holiday Hangover: Profit taking after the holiday market rally
March = Spring Awakening: Investors finally recover from holiday ecstasy and post-holiday depression
April = April Blooming Perennials: Higher activity due to more sunshine and blooming
May = Sell in May and Go Away: Reducing investment risk before vacations
June = Midsummer Quiet Time: Thin and lazy trading in early vacation season
July = Sunshine-Induced Optimism: Still thin but crazier trading in late vacation season
August = Post-Vacation Mood Swings: Investors start coming back to offices
September = September Blues: Post-vacation portfolio reallocation and depression
October = Wound Licking: Just happy to be alive after September market turbulence and October aftershocks
November = Post-Traumatic Relief Rally: The dawn of a new stock buying season
December: Christmas Ecstasy: Your end-of-year gift from the stock market to improve your annual investment returns coupled with a pre-holiday burst of optimism
However, do not overestimate the predictive power of statistical “stars”. All statistical relationships become more significant and stable with longer periods of record.
Any economy is the mixture of mathematical relationships and psychosocial variables, while financial markets are our attempt to discern the economy of the future.
As a result, in the long term, financial markets behave mostly mathematically and rationally.
However, in the short term, they are emotional and psychologically difficult to predict, thus reflecting our human nature.
Know yourself, and success will follow!
Autors: Olegs Jemeljanovs
