History shows September is the market’s toughest month, but it may also be the best time for investors to buy in.
Transcript:
CAROLINE WOODS: I know historically September can be a pretty rough month for stocks. Are you concerned as we approach September, our seasonality hasn’t necessarily, you know, followed suit based on the whole “sell in May and go away” adage — didn’t really pay off to do that this year.
SAM STOVALL: That’s right. Seasonality has certainly not been repealed. Sometimes we might not be as pronounced as it has been in other years, and September for the S&P 500 has been by far the worst month of the year, posting the deepest decline on average and falling more frequently than it has risen. It has risen only 44% of the time going back to World War II. So there is still a possibility. However, I would regard that more as a buying opportunity than I would as a reason to sell. So in a sense, you’re better off buying than bailing. Our year-end target is 6650 for the S&P 500, and that’s based on our 12-month target of 6850. So we still see upside potential even though it remains in the mid to slightly higher single digits over the coming period.
CAROLINE WOODS: So fill us in. What should investors be buying on a pullback or even buying despite the fact that stocks are high right now?
SAM STOVALL: Well, it’s what’s interesting is that history reminds us that after a sharp decline of 10% to 20% or even more than that, you are better off buying those groups that were beaten up because they tend to outperform 12 months later. S&P has gained an average of 24% 12 months after a decline of more than 10%. And whereas the three worst performing sectors were up about 35% and the 10% worst performing subindustries were up more than 60% 12 months later. Right now, we are seeing that kind of return while the S&P has been up close to 30%. The best performing sectors since the April 8 low have been the communication services, consumer discretionary and tech sectors. You could also add financials in the category. The 10% best performing subindustries have been up more than 45%. So investors are sticking with momentum because that’s where the power is at this point. Like whitewater rafting, investors are letting the market take them where it wants to go.
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