September was another positive month for investors. The S&P 500 rose 3.5% for the month, once again bucking the historical trend for weakness in this period of the calendar. In fact, this was the best September performance in 15 years.
Heading into August/September I cautioned numerous times that these were two of the weakest months on the calendar if you look at decades of historical data and not to be caught off guard if we saw a pullback....But the weakness didn't arrive. Like I always say, past performance is no guarantee of future results. Things that don't usually happen can happen at any time. If you were wondering why I wasn't recommending to sell and sit on the sidelines in August and September just because historically this period of the calendar is weak....This is exactly why. The market was up more than 5% between August and September. Even if you think weakness may be coming, it's important to stay invested!
Overall, the third quarter (July/August/September) was up nearly 8%, the best performance for a Q3 in 5 years. The S&P 500 is now up more than 13% for the year. So what might this mean moving forward? Well, I have a chart for that.
Take a look atTHIS CHARTwhich shows us all of the years in which the market was up 10% or more heading into the 4th quarter.
First....let's focus on the column showing Octobers returns and you'll see a very mixed bag with just as many negatives as positives. The average return for October when we are up 10% heading into the month is actually slightly negative. However, in the far right column, we see that the total return for the 4th quarter has still been a solid 4.3% and higher more than 80% of the time.
So my takeaway is this....We bucked the trend of weakness in August and September....But the data tells us that October can be tricky when we are up significantly on the year heading in. We've been up for 5 straight months and have now rallied more than 30% from the April lows without much of a break. Don't be surprised to see some volatility this month. But if/when that volatility comes, don't let it discourage you. The historical data shows us this would be perfectly normal and the 4th quarter overall could still certainly generate further positive performance.
As far as the government shutdown....These things have historically been a bit of a nothing-burger for the stock market. Take a look atTHIS CHARTto see how the market has performed during all previous government shutdowns since 1976. The average return during a shutdown is basically flat....But the 12 months following a shutdown have produced an average return of nearly 13% and have been higher 86% of the time. Heck, the last time we saw a long shutdown in 2018 the market rallied 10% and tacked on another 24% over the following 12 months. Ignore the noise. The market usually does.
