September Is A Tough Month For Stocks Historically; How To Manage It

Over the last 20 years, September has been one of the worst months of the year in terms of performance. Over that time frame, the S&P 500 has experienced upward movement in 12 of those 20 years (60%), yet the average return for the month is -0.4%. Compare that to November which has averaged 2.1% returns over the last 20 years and moved higher 80% of the time

These stats are applicable if trading the SPDR S&P 500 Trust SPY or even the Invesco QQQ Trust Series QQQ as the Nasdaq 100 has performed similarly to the S&P 500 in September.

Note that the chart says 2003 to 2022 to reflect the last 20 completed months of September. Chart courtesy of StockCharts.com.

Over the past 10 years, the S&P 500 has performed even worse in September. It has moved higher in five of the last 10 years (50%) and has lost an average of -1.4%.

As for other indices, the NYSE Composite has witnessed upward movement in September in 11 of the last 20 years. That is 55% of the time, and the index has averaged a loss in September of -0.4%. Over the past decade, the NYSE Composite has experienced upward movement in four out of 10 years, with an average September return of -1.4%.

The NYSE Composite is a very broad index, including companies from all industries and of all sizes. It is representative of a "typical stock" and shows that a wide range of stocks don't perform well in September.

The Nasdaq 100 index, which is highly focused on large technology companies, has shown upward movement in 10 of the last 20 years (50%). On average, the index lost -0.3% in September. Over the past ten years, the average return has been -1.7% and the index has moved up in three out of those 10 years (30%). 

Portfolio Strategies For September

September is a tougher month for stocks and thus there are different ways to manage it.

Long-term investors can stay the course and stick with a buy-and-hold strategy. A slightly weaker month (historically) isn't a reason to sell, especially since October and November tend to be some of the strongest months of the year. Over the long term, the S&P 500 has returned about 10.5% per year, and the Nasdaq 100 has returned 14.3% per year, even with all the yearly and monthly ups and downs.

Swing traders and shorter-term traders may be interested in buying the dip in fundamentally strong stocks if the stock prices pull back in September. Recall that September is followed by historically strong months in October and November, so a pullback in September can provide an advantageous buying opportunity.

Coming into September, Energy, Consumer Cyclicals, and Industrials have been the strongest sectors over the last three months.

The S&P 500 and Nasdaq 100 are currently in uptrends. While September tends to be a bit slower month for many stocks it is still worth looking for trade setups on the long side as the uptrend could continue, or buying fundamentally strong stocks on a September dip could be advantageous.  

The ETFs themselves are also tradable. SPY and QQQ are some of the most actively traded ETFs, and there is also the option to gain additional exposure through leveraged ETFs such as the Proshares Ultra Pro QQQ TQQQ or the ProShares UltraPro Short QQQ SQQQ

These ETFs move three times as much on a daily basis as QQQ.

Disclaimer: The author has long-term buy-and-hold positions in S&P 500 and Nasdaq 100-related ETFs.