Beware September-October Jinx

The struggling stock market is facing another potential source of woe: the September and October jinx. Dating all the way back to 1929, September is the worst month of the year for the stock market, with losses averaging more than 1% a year, and once as much as 11%. October, in turn, has produced numerous devastating crashes, the biggest being the 22.6%, 508-point stumble on October 19, 1987, since dubbed Black Monday.“Just check the facts and you’ll see for yourself. It’s probably one of the untold stories why the market is acting so poorly,” a Los Angeles-based money manger, Tom Postin, who manages about $240 million at P&W Partners, told me in an e-mail message recently.The stock markets plunged yesterday, with the Dow Jones Industrial Average falling more than 340 points, or nearly 3%, to 11,188. The index has fallen more than 15% so far this year. Yesterday’s fall was partly in reaction to dismal news from several retailers and data from the Labor Department that new applications for unemployment insurance rose by 15,000 last week versus the previous week. On Friday, economists are expecting to see non-farm payrolls, or the number of paid employees working part- or full-time in business and government, fall by 75,000, with the potential of dropping by as much as 100,000 from last month.Mr. Postin, who estimates the Dow could fall to between 10,800 and 11,000, says he expects the market to be especially vulnerable for the next two months because of its inability to generate any sustained rally, despite some positive developments. This includes the recent 25% slide in the price of oil; a better than expected economic showing in the second quarter, with gross domestic product rising at a 3.3% annual rate; some strong earnings reports, and the Federal Reserve’s willingness to help bail out a faltering financial system.“The market is telling us it’s not going up for any sustained period anytime soon and is likely to go lower,” he says. He cites as an example Tuesday’s roller-coaster market performance, with buyers piling into the market in early-morning trading, quickly pushing up the Dow more than 240 points on news of another drop in oil. Unfortunately, the rally had a short life, and the Dow closed lower on the day in response to renewed worries about the economy and financial companies.Some other key factors contributing to Mr. Postin’s bleak view:o The American economy is continuing to slow, as are economies worldwide.o Consumers are dramatically cutting back in their spending, evidenced by plummeting auto sales.o Bank lending is increasingly tightening.o Commodities, the pillars of the market, are collapsing.o Leveraged buyouts are going bust.“The world is not coming to an end, but it will certainly take a heck of a long time to resolve all the problems,” Mr. Postin says. “In the meantime Wall Street will grow more and more nervous, and stocks will have nowhere to go but down.”For some specifics about the September-October jinx, I rang up a couple of Standard & Poor’s top trackers of market statistics, including its chief investment strategist, Sam Stovall, and senior index analyst, Howard Silverblatt.Since September 1929, the S&P 500 has posted an average loss in the month of September of 1.15%. Since 1970, the monthly loss has averaged 0.78%, versus an average increase of 0.7% for all other months.On a number of occasions, the September losses were much greater. In September 2002, just prior to the bottom of the Internet debacle, the S&P 500 tumbled 11%. In other years, such as 1931, 1932, 1938, 1946, and 1955, September showed losses ranging between 6.6% and 9.9%.Why is September so bad? As Mr. Stovall explains it, part of the third quarter is typically weak as investors are more focused on their tans than their portfolios. He also cites a lack of capital inflows and frequent downward revisions of third-quarter earnings.October has also produced some memorable losses, though the month itself, dating back to 1928, has posted an average gain of 0.44%. Still, that modest increase has been more than offset by the loss on Black Monday, as well as wicked declines of 12.3% and 10.5% on two days in October 1929, which coincided with the famous stock market crash.The obvious bottom line: Beware the September and October jinx.dandordan@aol.com

Beware September-October Jinx

Beware September-October Jinx

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