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Aug. 31, 2011, 12:01 a.m. EDT
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "â? The stock market definitely has its work cut out for it in September.
The month's historical record is nothing short of dismal, and there doesn't appear to be any easy way to wriggle out from underneath the sheer force of that record.
Since 1896, for example, when the Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA +0.18% was created, the Dow has lost an average of 1.07% in September. The average gain for all other months is 0.71%. That spread of 1.78 percentage points is statistically significant at the 95% confidence level that statisticians often use to determine if a pattern is most likely genuine.
September is the worst month on the calendar for stocks, with losses averaging up to 1.2%, according to MarketWatch's Mark Hulbert, who says that after a lousy August there's evidence September comes in worse. Laura Mandaro reports. Image courtesy of Getty Images.
Furthermore, there has been a remarkable consistency to the stock market's dismal performance during September. During each of the last nine decades, for example, September's rank relative to other months in terms of performance has never been higher than ninth. It was dead last in five of those nine decades "â? including the most recent one.
To be sure, September's terrible reputation is widely known, and patterns often stop working once too many investors begin trying to exploit them. But the pattern has been widely known for many years already, and shows no signs of weakening.
For example, it was more than 20 years ago that (as far as I can tell) the first academic study appeared in which September's significantly below-average return was noted. Since that study was completed, the spread between September's average return and that of all other months has been even wider than it was up until that point.
Might this coming September escape these odds, since the last several months have been such tough ones for the stock market? Unfortunately, it's difficult to make this argument on the basis of the historical record.
In past Septembers, in fact, the stock market on average has performed even worse whenever the months immediately preceding it were bad ones for the stock market.
Like now, for example.
Perhaps the best argument that stock market bulls can make about September is that there would appear to be no good reason for why the month should be such a bad one for the stock market. Without a good theoretical explanation for a pattern, statisticians often remind us, there remains a not-insignificant possibility that the pattern is bogus.
This isn't to say that there is no explanation for September's dismal average performance. But I have looked far and wide and have never found one. If you know of one, please let me know "â? I'd love to study it.
The bottom line? September's terrible record is like a crime without a motive. Be bullish at your peril.
Click here to learn more about the Hulbert Financial Digest.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now. Collapse
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