Global stock markets experienced a dark start to August with economic concerns, index declines, interest rate hikes in Tokyo, and volatile tech stocks as some contributing factors. However, turbulence in August is not uncommon in the stock market, as historically, it is one of the weaker months of the year.
Ending the month with a modest decline of 0.5 percent for OMXS30 and turning positive in the US on the major indices S&P500 and Nasdaq Composite actually boosts the average returns for the month of August. On average, since 1990, the S&P500 has returned -0.56 percent, Nasdaq Composite 0.06 percent, and OMXS30 has been -1.71 percent in Stockholm during the month of August.
The bad news for those who follow the calendar closely is that September tends to be one of the worst months of the year in both the US and Sweden. For OMXS30, the average return in September has been -1.73 percent, while S&P500 has declined by 0.9 percent and Nasdaq by over 0.8 percent.
According to statistics from Infront from 1990 until today, which covers a span of over three decades, these trends have been consistent.
The good news, as illustrated in the graph, is that after navigating through August and September, it tends to be much more enjoyable to check your stock portfolio again. October, November, and December are traditionally strong months when the forward-looking stock market tends to focus on potential earnings growth for the next year and moves past the current year’s setbacks.
Optimism usually carries into the new year as well.
Of course, there is no natural law stating that September must be negative again this year. While it has been clearly negative in Stockholm for the past three years and in the US for the past four years, there have also been periods where September has been positive for several years in a row.
Economic indicators, interest rate movements, and corporate earnings growth are more important than the historical outcomes of individual months.