SentimenTrader ---- The September Strategy (such as it is)

 

Key Points

• September is the only month that has shown a loss on average for stocks
• Trading days around a market holiday tend to be better than average for stocks
• The "September Strategy" (such as it is) can be summed up pretty simply as follows: Enjoy the holiday. Then take the rest of the month off

The September Strategy Rules

Here are the "trading rules" (such as they are):

• Hold the S&P 500 Index from January through August and October through December
• Also hold the SPX for the first three trading days during September.  During all other trading days in September, hold cash

To put it another way:

• Sell the S&P 500 Index at the close of the 3^rd trading day of September (in 2024, this date is 2024-09-05)
• Buy back the S&P 500 Index at the close of the last trading day of September (2024-09-30)

OK, so as far as "strategies" go, there isn't much to it granted.  Still, before dismissing it as overly simplistic, let's take a closer look.

 A closer look at September S&P 500 results

The chart below displays:

• The growth of $1,000 invested in the S&P 500 index ONLY during the 1^st 3 trading days of September starting 1919-12-31
• The growth of $1,000 invested in the S&P 500 index ONLY during ALL OTHER trading days of September during the same time

The bottom line:

• 1^st 3 trading days of September: Sort of OK sometimes (cumulative +23%)
• All other September trading days: Not so good (cumulative -79%)

The table below summarizes S&P 500 performance only during the first three trading days of September.

The table below summarizes S&P 500 performance only during all the other trading days of September.

The September Strategy versus Buy-and-Hold

The chart displays the cumulative growth of $1 invested using the "System" rules spelled out above versus the cumulative growth of $1 using buy-and-hold since 1919-12-31.

For the record:

• $1 invested using the "System" grew +278,621%
• $1 invested using buy-and-hold grew +59,099%

The chart displays the cumulative growth of $1 invested using the "System" rules spelled out above divided by the cumulative growth of $1 using buy-and-hold since 1919-12-31. Over 104 years, the "System" has outperformed buy-and-hold by 4.7-to-1, as shown below.

What the research tells us...

It is a mistake to assume that the stock market is automatically going to run into trouble during the month of September. At the same time, that has historically been a pretty good bet. What will happen in September 2024 is unknowable. But the fact remains that sitting out most of the month of September would have boosted an investor's returns dramatically over the last 104 years. Make of it what you will.