A Decade of Best and Worst Months

As we approach the end of August, the question asked most often is how will the dreaded worst months of the year perform. Bad times in the market have been associated with September and October for decades. Recent history ("recent" meaning since the year 2000) tells a slightly different story. Does late Summer and early Fall always spell doom and gloom for the stock market?

Take a look at the monthly charts below. Using price data from the S&P 500, three charts are displayed; a ten year history, recent five year history , and a 2010 year-to-date for comparison.









The recent five year chart is overshadowed by the disaster of 2008 so let's focus on the ten year chart at the top. You can easily see the obvious strengths and weaknesses during certain months, but the poor June performance and the flat October performance, overshadowed by September, is a little surprising. Surprising only because the 2008 loss for October dwarfed the September loss by -7.4%. Knowing this, let's look at the frequency of annual gains over the last ten years.



This chart shows how many years out of the last ten that each month stayed out of negative territory. August, November, May, and December have racked up respectable records of achieving gains at least 70% of the time over the last ten years. Notice the poor performance of June and February. September and October do not look so bad here. Combined, both months provided gains just over 50% of the time.

The final chart, below, shows how September retains it's reputation as a "difficult" month. Using an 8% loss as the benchmark, September has provided losses in excess of 8% during three of the last ten years. Notice that February is not far behind. Since this chart only shows frequency rather than magnitude, October's one loss over 8% (-16.8% in 2008) goes to show that even with good behavior 60% of the time, a bad month can be a really bad month.