If history and superstition hold true, then the next two months are likely to send the fledgling bull market for shares to the butchers, despite the London and New York stock markets hitting newhighs this week. The problem is not imminent bad news from British companies, poor US trade figures or an Asian economic contagion, but the calendar.
Quite simply, when it comes to making money, September and October have a well-deserved reputation as the bad pennies of the financial calendar. David Schwartz, a stock market historian, says: “This period makes people nervous, and with good reason. It seems we regularly get punched on the nose with down turns or shocks at this time of year.”
It may sound a little too much like investment by horoscope but the evidence to support it is, if not compelling, at least convincing. Since 1984 the FTSE 100 index, which tracks the share prices of the UK’s 100 biggest companies, has fallen in 63 per cent of Septembers, making it the worst month of the year to invest. Over that period, someone who had invested in the FTSE 100 in September and then shifted into cash for the rest of the year would have lost 27 per cent of their money. The next worse month is June, which has seen a loss of 16 per cent over the same period.
By comparison, investors who held shares in April before moving back into cash would have seen a 40 per cent increase in their wealth.
September has not just been bad news for the UK, either. In the US over the past 51 years the S&P500, a key index, has fallen 31 times that month. It is the only month in which the index has fallen more than half the time.
October, too, has a pedigree for bad news. Indeed, the month has been a bad one for capitalists ever since Russia’s provisional government was swept aside by the Bolsheviks in 1917. A dozen years later, in the last days of October 1929, the stock market suffered an epoch-making crash, wiping out 30 per cent of the value of US markets in three days and plunging the world into the Great Depression of the 1930s.
October 1987 saw the Black Monday crash, when markets in the UK and US fell more than 20 per cent, crushed by a mixture of panic and computer- programmed selling. In October ten years later, the Asian currency crisis unravelled and the Dow Jones Average, a key US index, tumbled 7.2 per cent, prompting US markets to close early. The following October hit a stock market low following the Russian loan crisis and the near-bankruptcy of the giant US hedge-fund group, Long Term Capital Management (LTCM).
Mr Schwartz says: “What is the cause? I don’t know, it is not as if someone blows a whistle and says, `September, October, ok let’s have it’. But we do get a frightening amount of economic and political shocks at this time of the year.”
Mr Schwartz may be able to admit his bafflement but analysts and fund managers are paid to make sense of the markets, so not surprisingly theories abound. Hillary Cook, investment strategy director at Barclays Private Clients Stockbrokers, says: “The market is usually coming out of a quiet season in the summer and it may be that people are over-optimistic in August and, because of the low dealing volumes, that has a significant effect. September and October are traditionally when some reality returns to the market.”
Other experts lay the blame at the doors of the massive American investment funds whose trading activities are essential to the health of the US stock market. These funds pay dividends to investors in November. The theory is that they stockpile cash during September and October, reducing investment and forcing the market down. Other experts claim that funds sell stocks at this time of the year to lock in their financial position for their year end.
The theory fails, though, when you consider that May is also a big month for dividends, meaning March and April should be poor months for investors. In fact, April and March are two of the best months for investing, with markets rising in more than 70 per cent of those two months.
Other analysts blame the traditional post-summer wave of new share offers for sucking funds out of the market. The theory is that big institutional investors earmark funds to buy these shares and so spend less on established shares.
But this does not explain why September and October in particular should bear the brunt of poor performance and market shocks; share offers tend to continue through until December, which is once again one of the better months for investment.
Richard Urwin, head of strategic research at the Gartmore fund management group, says: “I have heard a lot of theories, but I am 99 per cent certain they are rubbish and that the truth is it is just bad luck. Markets are simply not that easy. If there was some way to save or make money by avoiding a certain month then we would all do it.”
For superstitious investors, there is some good news. The stock market has never fallen over the year before a US election, thanks largely to the largess of serving presidents. There is an election next year, and George Bush will be up for re-election. Fingers crossed that he can buy us a peaceful couple of months.
THE MONTHS OF MONEY WOES
v Since September 1984, The FTSE 100 has lost value in 12 out of 19 Septembers (see right)
v The net loss over that period has been 1918.7 points.
v December has been the best month over the period since 1984, closing down just four out of 19 times with a net gain of 989.3 points.
v September 26 has been the worst day for share investment, closing up just 26 per cent of the time since World War 2.
v June 6 has been the best day, closing up 77 per cent of the time.
CONTACTS
vBarclays Private Clients: 020 7977 7777 www.barclays- stockbrokers.co.uk
vFTSE index: www.ftse.com
vStockmarket historian David Schwartz www.schwartztrends.com
vGartmore: 0800 289 336 www.gartmore.co.uk
vTrustnet: www.trustnet.com
