New York — Stock investors hoping for a bit of relief after a rough August, take warning: September is historically a bad month for stocks, and this one offers a few more potholes than usual.
September is the only month of the year in which the Standard & Poor’s 500 index has fallen more often than it has risen in the post-World War II era, according to Sam Stovall, U.S. equity strategist for S&P Capital IQ. It’s also the month that has produced the worst average return, a negative 0.63 percent, compared with a positive 0.66 percent for the average month from the end of 1945 through Friday.
“We start a month with a bad reputation,” he wrote recently.
That’s an unnerving prospect for investors who watched major stock indexes — jarred by fears of a stumbling Chinese economy and mixed signals from the Federal Reserve on when the central bank might raise interest rates — skid more than 6 percent in August after another down day Monday.
In all, the S&P fell more than 12.4 percent from its May 21 peak through a trough on Aug. 25, before recovering somewhat at the end of the month. Broad markets are now in negative territory for the year, with the S&P 500 off more than 4 percent and the Dow down more than 7 percent.
Why September has been unfriendly to stock investors is a matter of some debate. Stovall said one culprit might be the impatience of investors who tend to give up on underperforming stocks by the end of the third quarter. Another might be mutual funds, which often sell poor-performing stocks to avoid investor complaints.
But while October is better known for calamitous crashes — in 1929, 1987 and the bear market of 2008 that began quietly in October the year before — September has done the most damage, and this one is especially fraught, analysts said.
Even setting aside worrisome slowdowns in China and emerging markets generally, analysts said the intrigue over the Fed’s intentions on interest rates has only deepened as the Sept. 16-17 meeting of its Federal Open Market Committee approaches.
Markets have been particularly rattled by what analysts called mixed signals from hawks and doves among the Fed’s Board of Governors, with investors reacting last Monday to Vice Chairman Stanley Fischer’s remarks at the Fed weekend symposium in Jackson Hole, Wyo., that inflation is likely to rebound as the U.S. dollar loses strength.
“Nobody knows where the Fed’s at, at this point,” aid Alan Whitman, a Morgan Stanley managing director. “That mystery is even more confusing now.”
More fundamentally, corporate earnings appear to be slowing. S&P Capital IQ estimates that earnings of the S&P 500 will decline 4 percent in the third quarter compared with a year earlier. Earnings increases from such sectors as consumer discretionary companies, telecom and financial firms are expected to be more than offset by a huge 63 percent decline in energy earnings, along with significant slowing in the basic materials, consumer staples and industrial sectors.
Head for the hills? Not so fast.
Stovall and other analysts note that the economic recovery, although never robust, still has some room to run. John Lonksi, chief economist for Moody’s Analytics, said as long as earnings continue to grow, corporations can continue to pay dividends on stocks, which provide relatively attractive returns in an otherwise dismal investment landscape.