We’re anticipating a bumpy September, aka the September effect.
Certainly, the past doesn’t dictate the future. However, data collected since 1928 show the market often dips in September.
The Truth About Stock Market Seasonality
In reality, slower stock market activity in late summer through September is likely due to financial professionals taking vacations.
Less people working means less trading. This can also cause bigger market swings, since there are less trades to neutralize stock fluctuations.
Apathy likely plays a role too.
Some people simply don’t work as hard in the summer.
Also, when vacations are over, many financial professionals start rebalancing portfolios.
This often includes selling underperforming stocks, which can create downward pressure on the markets.
Santa Claus Rally
The chart also highlights a common Q4 occurrence: the Santa Claus Rally, when the market tends to swing upward.
Remember, consumer spending makes up two-thirds of the economy. The markets tend to increase at year-end in anticipation of holiday spending. (Roughly 19% of annual retail sales happen in November and December.)
Also, another common December occurrence you don’t often hear about is: window dressing.
Essentially, financial firms buy well-known and well-performing stocks to make their financial statements look better. There are legal measures to curb these activities, but it still happens. Either way, the activity adds to the December upswing.
Embrace Volatility
We view volatility as an opportunity.
While it’s not always the case, periods of volatility can be a great time to purchase stocks at attractive prices.
Of course, volatility is just one factor to consider when choosing investments.
Other considerations include market performance year-to-date, the political environment, the situation in the Middle East, the economy overall, interest rate changes and more. (Remember, it’s our job to worry about all these factors for you, so you can focus on enjoying yourself.)
Before You Go
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