History: Don't Count Out a September Rally Yet

September historically underperforms, but 2023 may catch a break

Senior Quantitative Analyst
Sep 7, 2023 at 8:00 AM
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Stocks have had a poor start to September, which is not surprising given that September is historically the worst month of the year for stocks. Since 1950, the S&P 500 Index (SPX) has averaged a loss of 0.66% in September, and only 44% of these returns have been positive. Since 2000, September has had the worst average return (1.51% loss) with only 48% of the returns positive. In this article, I will break down monthly returns further to see if there is any reason to believe that September has a good chance to break this norm.

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September Price Action for the SPX

The chart below shows how the S&P 500 wound up at those averages above. It all seems to go wrong around Sept. 16. Both time frames (since 1950 and since 2000) are at their highest point on that date then fall precipitously during the second half of the month. The market doesn’t seem to be waiting that long this year before heading lower.

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This Year Could be Different

I showed above that September has typically been a bad month for the stock market. Things change, however, when you consider the S&P 500 was up about 17% on the year through August. The table below shows how stocks have performed in September based on year-to-date return heading into the month. When the market was up by double digits, like this year, the S&P 500 averaged a gain of 0.61% with 54% of the returns being positive. That’s not extraordinary (it would rank 8th out of the 12 months since 1950) but at least it’s moving in the right direction.

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Bullish returns through August have also been a good omen for the rest of the year. The table below shows September through December returns based on the year-to-date return through August. When the S&P 500 was up 10% or more, the rest of the year averaged a gain of 5.29% with an impressive 88% of the returns positive.

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