Buckle Up For Market's Most Perilous Period

John Prestbo MarketWatch September 14, 2011

Become a MarketWatch member today

John Prestbo's Indexed Investor Archives | Email alerts

Sept. 13, 2011, 12:01 a.m. EDT

By John Prestbo

NEW YORK (MarketWatch) "” There is no crystal ball in investing. So when the stock market bounces around like it has lately, sometimes a look back at history can provide a bit of foresight "” and maybe even reassurance.

Or not. Investors' jitters about slowing global economic growth, the European sovereign debt crisis and persistent U.S. unemployment are not new. But now the market is deep into its most vulnerable time of year.

Over the Dow Jones Industrial Average's /quotes/zigman/627449/delayed DJIA +0.40% 115-year history, September has been the cruelest month, with an average decline of around 1.1%. That record is heavily influenced by a 30.7% plunge in September 1931; eliminating that data point still produces an average decline of 0.8%. Meanwhile, October "” during which some of the market's most famous crashes have occurred "” is barely in positive territory at 0.22%.

The market's mood brightens as year-end approaches, with November averaging an increase of 0.93% and December "” perhaps in keeping with the holiday spirit "” turning in the year's best performance with an average 1.42% jump. Here is a table showing the Dow's historical average performance month by month from best to worst:

August this year was punishing; the Dow dropped 4.4%. In 40 other years, a decline in the eighth month was followed by a sinking September. The average decline in those Septembers was 0.27%. By contrast, there were 20 Septembers "” including 2010 "” in which the market posted gains after August losses. The Dow surged an average of 4.6% in those Septembers.

This month has not started well. In the first four trading days the Dow lost 1.7%. But that ranked only 19th in history. The worst beating the market took in the first four sessions of September was in 1946; the Dow collapsed 4.88%, edging out the 4.87% plunge in the comparable 1931 period.

This year started out upbeat, with the Dow rising 7.2% through June 30. But the Dow has lost all that and more so far in the second half. Indeed, the benchmark was down 4.5% for the year through Sept. 12.

/quotes/zigman/627449/delayed DJIA 11,105.85, +44.73, +0.40%

There have been nine years in the Dow's history in which a first-half gain was erased in the second half, delivering an overall loss for the year. The most recent was 1990, when a 4.6% gain during the first six months was obliterated by an 8.6% retreat in the final half, leaving the year down 4.3%.

Through August 31, 11 of the 30 Dow stocks were up for the year, led by McDonald's Corp. /quotes/zigman/233369/quotes/nls/mcd MCD -0.08% with a gain of 17.85%, and International Business Machines Corp. /quotes/zigman/230066/quotes/nls/ibm IBM +0.62% up 17.1%.

Of the 19 Dow components with losses through August, Bank of America Corp. /quotes/zigman/190927/quotes/nls/bac BAC -0.71% suffered most (down 38.8%), followed by Hewlett-Packard Co. /quotes/zigman/229301/quotes/nls/hpq HPQ +0.53% (38.2% lower). Lightest hit was Procter & Gamble Co. /quotes/zigman/238894/quotes/nls/pg PG +0.18% , (off 1%).

Volatility rules

While the market's future course may not be clear, we can agree that it appears much more volatile than usual. Over its history, the Dow's standard deviation of returns has been 15% from average on a rolling three-year basis. In August that variation was 41%, which is in the same league as 1933 with a three-year volatility of 41.9%. (The one-year volatility champ was 1932 at 50%. Even 2008, a truly miserable year for investors, was less volatile at 16.1%.)

It's important to understand that volatility, which is measured in both rising and falling markets, does not predict performance. The Dow has had 47 three-year periods of above-average volatility. It rose in 24 of those periods and fell in 23. The average gain in the up markets was 27.2%, and the average decline in the down markets was 18.8%.

The Dow's volatility has been above average on a rolling three-year basis in 2009, 2010 and so far this year "” 21% through Aug. 31. The previous stretch of heightened volatility, again on a rolling three-year basis, spanned 2000 through 2004 and averaged 16.7%.

Whether this history brings you reassurance or apprehension, this much is true: This is not the first time the market has been in such turmoil. It weathered those other storms, and it will survive this, too.

John Prestbo is editor and executive director of Dow Jones Indexes, a joint venture of CME Group, Inc., and Dow Jones & Co., Inc., publisher of MarketWatch. Fernando Fernandes and Lauren Mulryne contributed research to this report.

You're invited! "Finding the Right Exchange-Traded Funds" is the topic of a MarketWatch panel discussion set for 9 a.m. Wednesday, Sept. 21 in Chicago, hosted by MarketWatch columnist Chuck Jaffe. Join us for this breakfast event featuring the expertise and analysis of Michael S. Falk of Michael S. Falk Asset Consulting in Chicago; David Trainer, president of New Constructs Inc. in Nashville; and Scott Burns, Director of ETF, Closed-End and Alternative Fund Research for Morningstar. They'll discuss how to evaluate your investment strategies and navigate the increasingly complex world of ETF products. If you'd like to join us for this free event, email your RSVP to wsjdnevent@dowjones.com by Monday, Sept. 19.

/quotes/zigman/627449/delayed Add DJIA to portfolio DJIA Dow Jones Industrial Average 11,105.85 +44.73 +0.40% Volume: 189.98M Sept. 13, 2011 4:30p var embeddedchart70394702Chart = new EmbeddedChart('#embeddedchart70394702', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:DJIA'); jQuery.data($('#embeddedchart70394702').get(0), 'embeddedchart', embeddedchart70394702Chart); /quotes/zigman/233369/quotes/nls/mcd Add MCD to portfolio MCD McDonald's Corp. $ 86.12 -0.07 -0.08% Volume: 6.60M Sept. 13, 2011 4:00p var embeddedchart1891690390Chart = new EmbeddedChart('#embeddedchart1891690390', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:MCD'); jQuery.data($('#embeddedchart1891690390').get(0), 'embeddedchart', embeddedchart1891690390Chart); /quotes/zigman/230066/quotes/nls/ibm Add IBM to portfolio IBM International Business Machines Corp. $ 163.43 +1.01 +0.62% Volume: 4.72M Sept. 13, 2011 4:00p var embeddedchart325606332Chart = new EmbeddedChart('#embeddedchart325606332', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:IBM'); jQuery.data($('#embeddedchart325606332').get(0), 'embeddedchart', embeddedchart325606332Chart); /quotes/zigman/190927/quotes/nls/bac Add BAC to portfolio BAC Bank of America Corp. $ 7.00 -0.05 -0.71% Volume: 220.62M Sept. 13, 2011 4:00p var embeddedchart728891016Chart = new EmbeddedChart('#embeddedchart728891016', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:BAC'); jQuery.data($('#embeddedchart728891016').get(0), 'embeddedchart', embeddedchart728891016Chart); /quotes/zigman/229301/quotes/nls/hpq Add HPQ to portfolio HPQ Hewlett-Packard Co. $ 22.70 +0.12 +0.53% Volume: 24.34M Sept. 13, 2011 4:00p var embeddedchart124732549Chart = new EmbeddedChart('#embeddedchart124732549', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:HPQ'); jQuery.data($('#embeddedchart124732549').get(0), 'embeddedchart', embeddedchart124732549Chart); /quotes/zigman/238894/quotes/nls/pg Add PG to portfolio PG Procter & Gamble Co. $ 61.94 +0.11 +0.18% Volume: 8.31M Sept. 13, 2011 4:00p var embeddedchart428224031Chart = new EmbeddedChart('#embeddedchart428224031', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:PG'); jQuery.data($('#embeddedchart428224031').get(0), 'embeddedchart', embeddedchart428224031Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});

var OB_permalink= 'http://www.marketwatch.com/story/no-surprise-stocks-usually-slide-in-september-2011-09-13'; var OB_Template="marketwatch"; var OB_widgetId= 'AR_1'; var OB_langJS ='http://widgets.outbrain.com/lang_en.js'; if ( typeof(OB_Script)!='undefined' ) OutbrainStart(); else { var OB_Script = true; var str = ""; document.write(str); } Comments on this story 6 Comments Most Popular Matthew Lynn's London Eye Buying opportunity of a lifetime getting closer 1. Slide Show The 10 most expensive streets in the U.S. 2. Asia Markets Asia stocks drop as financials weigh 3. Mark Hulbert Can you believe Wall Street? 4. Slide Show The 5 biggest job cuts of 2011 5. Join the Conversation 6 Comments 1,000 characters My comments... Community guidelines » Add Comment Breaking Insight Mark Hulbert Can you believe Wall Street? Todd Harrison Can Europe avoid the sovereign sequel? Matthew Lynn's London Eye Buying opportunity of a lifetime getting closer Jon Friedman's Media Web AOL crunches TechCrunch's Arrington Find a Broker Partner Center » Video 10 Years Ago, Enron Scandal Changed Wall Street Large Caps To Weather the Market's Storms If You Thought August Was Bad... Three Tech Stocks to Own in September and Beyond Featured Stories

Europe turns higher as banks pare losses; BP up

Europe stocks shake off opening losses and turn higher Wednesday, though some French banks remain under...

Australian gold stocks poised to shine

China developers "?short of cash': analyst

China's real-estate market may face an escalating credit crisis, with industry data for August providing...

Moody's downgrades SocGen, Credit Agricole

Moody's downgrades Credit Agricole and Societe Generale and says a review of BNP Paribas is continuing.

Can you believe Wall Street?

It was just about ten years ago that Enron began to crumble, even though this dubious anniversary has been...

WSJ WSJ MarketWatch MarketWatch Facebook Twitter Barron's Barron's SmartMoney SmartMoney AllThingsDigital AllThingsDigital FINS FINS More BigCharts Virtual Stock Exchange Financial News WSJ Asia WSJ India WSJ China chinese edition WSJ Japan japanese edition WSJ Europe WSJ Americas en Español em Português WSJ Radio WSJ Wine SEARCH 5:23 AM EDT September 14, 2011 /marketstate/country/us New York Closed /marketstate/country/uk London Open /marketstate/country/jp Tokyo Closed /marketstate/country/us /marketstate/country/uk /marketstate/country/jp View All Latest News /news/latest 5:12a

BP, Next support upside for FTSE 100

5:06a

Turkish banks to benefit from stimulus: Goldman

4:42a

British jobless claims rise 20,300 in August

4:29a

Greek default insurance costs rise, others drop

4:14a

Europe turns higher as banks pare losses; BP up

4:04a

Moody's downgrades SocGen, Credit Agricole

3:41a

Europe stocks shake off early losses, move up

3:36a

Europe stocks shake off early losses, turn higher

3:09a

French banks weigh on Europe stocks; Next, BP

3:04a

Asia stocks drop as financials weigh

3:03a

German DAX 30 index down 1.2% at 5,106.37

3:02a

Next up 4.7% after H1 results

3:02a

SocGen down 5% after Moody's downgrade

3:01a

BNP down 6% as Moody's review continues

3:01a

Credit Agricole down 4.9% after Moody's downgrade

3:01a

U.K. FTSE 100 index down 0.4% at 5,155.10

3:00a

French CAC 40 index down 1.3% at 2,858.64

3:00a

BREAKING

Stoxx Europe 600 index down 0.7% at 219.36

2:34a

Europe stock futures lower after French banks cut

2:29a

Next profit up 35%, sees retail headwinds easing

Loading more headlines... dow /quotes/zigman/627449/delayed 11,105.85 +44.73 +0.40% nasdaq /quotes/zigman/123127 2,532.15 +37.06 +1.49% s&p 500 /quotes/zigman/3870025 1,172.87 +10.60 +0.91% Kiosk 1241971200000 1242619200000

Forecaster of the Month

Economy is on thin ice With an economy this vulnerable, a sharp shock could send the U.S. right through the ice and into precarious water, says economist Nigel Gault. "¢ Forecaster of the Month "” through the years /conga/kiosk/investing.html 167557 1247536800000 1247587200000

Campaign 2012

Bachmann enjoys pharma largess Rep. Michele Bachmann blasts Rick Perry for the Texas governor's ties to drug giant Merck, but records show Bachmann has raked in close to $150,000 in donations from Big Pharma. /conga/kiosk/economy-politics.html 167581 1305939600000 1306086900000

Technology

Sculley, Jobs still at odds Onetime Apple CEO John Sculley says co-founder Steve Jobs still blames him for his ouster. They don't speak (FINS). "¢ Dividend finally on table at Apple? (blog) /conga/kiosk/tech.html 167540 1315567500000 1315787100000

Video

Hands-on Windows 8 AllThingsD's Ina Fried shows the old and new Windows that live side-by-side in the next version of Microsoft's flagship operating system. /conga/kiosk/video2.html 167521 1302573600000 1302573600000

News Alerts

Breaking-news alerts "” news when you can use it Sign up for MarketWatch alerts and get an instantaneous heads-up when news occurs that affects your life and portfolio. /conga/kiosk/alerts.html 140190 MarketWatch.com Site Index Topics Help Feedback Newsroom Roster Media Archive Premium Products Mobile Company Info Code of Conduct Corrections Advertising Media Kit Advertise Locally License our Content Broker Center MarketWatch on Facebook MarketWatch on Twitter RSS Podcasts WSJ.com Barron's Online BigCharts Virtual Stock Exchange All Things Digital MarketWatch Community Financial News Online WSJ.com Small Business FINS: Finance, IT jobs, Sales jobs

Intraday Data provided by SIX Telekurs and subject to terms of use. Historical and current end-of-day data provided by SIX Telekurs. Intraday data delayed per exchange requirements. Dow Jones Indexes (SM) from Dow Jones & Company, Inc. All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More information on NASDAQ traded symbols and their current financial status. Intraday data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. Dow Jones IndexesSM from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Telekurs and is at least 60-minutes delayed. All quotes are in local exchange time.

MarketsMarkets Data is loading... QuotesQuotes Data is loading... My PortfolioMy Portfolio Data is loading... My AlertsMy Alerts Data is loading... CommunityCommunity HOT PICKS MY PICKS MY GROUPS Data is loading...

ALERT:

MarketWatch Top Stories Link to MarketWatch's Slice. 15 $(".bgCurrencyFormatting").data("bgFormat", { last: "#,###.0000", change: "#,###.0000", percentChange: "#,###.0000%" }); if (typeof s != "undefined") { s.channel = "MarketWatch"; s.server = "www.marketwatch.com"; s.prop1 = "Article"; s.prop2 = "MW_Investing"; s.prop5 = "http://www.marketwatch.com/story/no-surprise-stocks-usually-slide-in-september-2011-09-13"; s.prop6 = "http://www.marketwatch.com/story/no-surprise-stocks-usually-slide-in-september-2011-09-13?link=home_carousel"; s.prop7 = "off"; s.eVar11 = "MarketWatch"; s.pageName = "MW_Article_John Prestbo's Indexed Investor_071F027E-DC1D-11E0-A65A-00212803FAD6"; s.prop3 = "MW_Article_John Prestbo's Indexed Investor"; s.prop4 = "MW_article_John Prestbo's Indexed Investor_Buckle up for the market's most vulnerable period "; s.prop8 = "MarketWatch.com"; s.prop19 = "article"; s.prop20 = "071F027E-DC1D-11E0-A65A-00212803FAD6"; s.prop21 = "John Prestbo"; s.prop22 = "MW_Article_John Prestbo's Indexed Investor"; s.prop23 = "9/13/2011 12:01:17 AM"; s.prop26 = "MW_Article_John Prestbo's Indexed Investor"; s.prop50 = "Computer Hardware|Computer Software|Software|Banks|Financial Services|Entertainment and Leisure|Travel|Media|Opinion|General|Commodities||US"; s.events = "event12,event18"; s.prop9 = "free"; s.prop10 = "home_carousel"; s.prop11 = ""; s.prop13 = "etfs_story"; s.prop25 = ""; s.prop27 = "nomem"; s.eVar4 = "MW_Article_John Prestbo's Indexed Investor_071F027E-DC1D-11E0-A65A-00212803FAD6"; s.eVar5 = "home_carousel"; s.eVar31 = "Wednesday"; s.eVar32 = "04:00"; s.prop39 = "a_column|m2|m4|m6|m7|m8|m11|m12|m16|m24|m27|"; /************* DO NOT ALTER ANYTHING BELOW THIS LINE ! **************/ var s_code=s.t();if(s_code)document.write(s_code) }//--> DM_cat("MarketWatch > Article > MW_Investing > MW_Article_John Prestbo's Indexed Investor"); DM_tag(); document.write(''); (function () { var d = new Image(1, 1); d.onerror = d.onload = function () { d.onerror = d.onload = null; }; d.src = ["//secure-us.imrworldwide.com/cgi-bin/m?ci=us-403743h&cg=0&cc=1&si=", escape(window.location.href), "&rp=", escape(document.referrer), "&ts=compact&rnd=", (new Date()).getTime()].join(''); })(); var _bgProxyUrl = "/bgproxy/bgproxy/forward"; $(function() { BlueGrass.Runtime.openConnection({}, function(connection, type) { if (type == "connect") { BlueGrass.MarketState.setup(); BlueGrass.Quote.setup(); } }); }); $(function() { var ajaxUrl = "/story/story"; MarketWatch.Story.InitializeStory(ajaxUrl, "http://system.marketwatch.com/newscloud/docguid/071F027E-DC1D-11E0-A65A-00212803FAD6", "/news/headline/getheadlines", "Buckle up for the market's most vulnerable period ", "http://www.marketwatch.com/story/no-surprise-stocks-usually-slide-in-september-2011-09-13"); }); $(function() { BlueGrass.Runtime.openConnection({}, function(connection, type) { if (type == "connect") { BlueGrass.Conga.setup(); if (typeof liveBroadcast != "undefined") { //if there are broadcasts scheduled (test should fail on any non section page) //start the live video polling MarketWatch.LiveVideo.beginPolling(); } } }); }); window.fbAsyncInit = function () { FB.init({ appId: "283204329838", cookie: true, // these two are not required for partners that status: true, // only rely on stk plugins and don't use connect channelUrl: 'http://' + window.location.hostname + '/channel.html', xfbml: true }); FB.Event.subscribe('edge.create', MarketWatch.FacebookLike.Liked); }; (function () { var e = document.createElement('script'); e.async = true; e.src = document.location.protocol + '//connect.facebook.net/en_US/all.j

Europe turns higher as banks pare losses; BP up

Europe stocks shake off opening losses and turn higher Wednesday, though some French banks remain under...

Australian gold stocks poised to shine

China developers "?short of cash': analyst

China's real-estate market may face an escalating credit crisis, with industry data for August providing...

Moody's downgrades SocGen, Credit Agricole

Moody's downgrades Credit Agricole and Societe Generale and says a review of BNP Paribas is continuing.

Can you believe Wall Street?

It was just about ten years ago that Enron began to crumble, even though this dubious anniversary has been...

BP, Next support upside for FTSE 100

Turkish banks to benefit from stimulus: Goldman

British jobless claims rise 20,300 in August

Greek default insurance costs rise, others drop

Europe turns higher as banks pare losses; BP up

Moody's downgrades SocGen, Credit Agricole

Europe stocks shake off early losses, move up

Europe stocks shake off early losses, turn higher

French banks weigh on Europe stocks; Next, BP

Asia stocks drop as financials weigh

German DAX 30 index down 1.2% at 5,106.37

Next up 4.7% after H1 results

SocGen down 5% after Moody's downgrade

BNP down 6% as Moody's review continues

Credit Agricole down 4.9% after Moody's downgrade

U.K. FTSE 100 index down 0.4% at 5,155.10

French CAC 40 index down 1.3% at 2,858.64

BREAKING

Stoxx Europe 600 index down 0.7% at 219.36

Read Full Article »

Buckle Up For Market's Most Perilous Period

Related Articles