Beware the Ides of September?

“Beware the Ides of March!” was a warning to Julius Caesar in February of 44 B.C. Unfortunately for him, he ignored the warning, and was unmercifully killed on March 15 of that year by a group of Senators opposed to his position of dictator for life of Rome.

According to Wikipedia, Ides was simply a term used in the Roman calendar that referred to the 15th of the month in March, May, July and October, and the 13th day of the month for the other eight months; Ides simply referred to a “half month,” and Romans considered it an important day of the calendar. Today the term Ides is used as indicating impending doom.

Seasonality in Investing

For the stock market, however, it might as well be the Ides of September. Students of the market know well the poor record September brings: Since 1897, the Dow Industrials have been positive in September just 41% of the time, by far the worst reading of any month. (December is best; it’s been positive 71% of the time.) On average, the Dow has dropped 1.2% in September during those 111 years, again, by far the worst month. The trend has been fairly consistent through the decades, too.

Why such a lousy performance? No one knows for sure, but part of it is likely a dearth of pension and mutual fund contributions during the month, combined with the fact that most mutual funds operate on an October 31 fiscal year–leading to loss selling among the big investors.

Even so, while the average September has been a loser, I urge you to take seasonality studies with a grain of salt. They’re not worthless by any means, but they’re more of a small positive or small negative factor. Certainly, it pays to be a bit more cautious than normal in September, but only if that caution is confirmed by other factors.

Breaking the Trend

Remember, most of the market’s advances (and declines, for that matter), come in just a couple of months of the year–unless you’re talking about a major bull or bear market. Thus, if you predetermine that this month is going to be good, or this month is going to be bad, you might end up missing out on some great gains, which could dampen your yearly return.

This happened last year, in fact–September was a great month for us as growth stocks ramped up, and many of our recommendations soared. Missing out on that would have hurt our returns in a big way.

Back to this year, my simple market timing indicators, along with some subjective opinion on the action of leading stocks, tells me September could indeed be rough–at least at the start. I’m still expecting some type of re-test of the July lows, although if it’s going to happen, it should happen within the next couple of weeks. Today (Wednesday, September 3) was the 34th day of the rally; successful re-tests usually occur between 30 and 40 days after the initial low.

Just Flopping Around

Right now, I can’t say the market is good or bad–it’s just flopping around. Few stocks are making sustained moves in either direction, and most investors who are playing in stocks are losing money, being whipped around, and buying high and selling low.

So I’m continuing to hone my watch list. One group that’s gaining attention is the so-called “bull market stocks,” i.e., firms whose business thrives when the market rises. So I’m watching brokerage stocks like Charles Schwab (SCHW) and TD Ameritrade (AMTD), and money managers like T. Rowe Price (TROW) and Blackrock (BLK).

None of these stocks are likely to shoot the lights out, but they are relatively safe bets to prosper when a real bull market gets underway–I’ve made good money (25% to 50%) in these types of names in previous years, especially early on in new bull moves. So keep an eye on them!