Time of the season

There are some people who tend to treat the stock market much like ancient people treated the world in general, basing projections upon various omens and past experience instead of looking at fundamental economic data.

There has been an ongoing belief that September and October are scary months for the market and in the past there have been significant downturns in those months. However, there have also been year where the market has gone up in those months. Now, it does turn out that September is the end of the Federal Government's fiscal year and October the beginning, and there have been enough times when budget changes, or the political process had led to increased uncertainty, and increased uncertainty is always a bad thing for equities as people want to reduce risk.

This year, there is no suspense over the budget so we have not seen that impact. Are there other things particularly ominous about these months? Well, the only other significant factor in the past was that many brokers came back from summer vacations and evaluated what had happened over the summer. This could lead to significant market moves as in effect we would have a few months of news being reacted to. However, with the advent of modern technology and the 24 hour access we all have now, this impact is just not there anymore.

Of course a third factor is simply the reputation these two months have. Once again, the belief that they are "down" months may make investors nervous and once again nervous investors seek safety. This self fulfilling prophecy may be the most significant, but it certainly isn't reliable, especially in a period where money managers are looking for entry points into an up market.

And this may be the most important factor of all in today's market. Money Managers have to address quarterly results at the end of September. You want to own the "hot" stocks that your investors expect you to own. Of course if the market is tanking, you want to get out of positions that make you look bad.

So, for all those who expect bad things to happen, and we could have a down or an up market in September and October because of the fundamentals, I think the time of year is simply not something to determine how you invest.