September is the cruelest month for investors. Just as some kids dread the return of the school bell, Wall Street’s return from summer vacation usually is not a time for shareholders to celebrate. We may be several days into September already, but for the markets it doesn’t really begin until Tuesday.
There is no definitive explanation why September has the highest odds of a market sell-off compared to any other month. Going back 60 years, the stock market has lost ground during more than half of those Septembers. The only other month that has seen weaker stock prices almost as often is February, but at least that’s the shortest month.
Two years ago, investors were staring into an economic abyss. Within the course of nine days in September 2008, the federal government took control of mortgage giants Fannie Mae and Freddie Mac, Lehman Brothers filed the biggest bankruptcy on record, and Merrill Lynch nearly collapsed. By the end of September 2008, we would see the biggest bank failure on record as Washington Mutual was taken over by the government. The S&P 500 plummeted 9.2 percent that September.
Washington Mutual is now part of JPMorgan Chase. Merrill Lynch was rescued by Bank of America. The ashes of Lehman Brothers continue to be sifted through by regulators, legislators, creditors and investors. And Fannie and Freddie have grown their mortgage businesses with the explicit guarantee of taxpayers. We can hope this month is less historic.