Beware the autumn fall: Should investors fear a September slump?
Historically, September has delivered a few nasty shocks to the stock market.
Having crunched the data from world markets for 40 years, financial planning firm Tilney has flagged it as the worst month for stocks and shares.
Looking at the data for each month, September was the only one where investors ended up worse off on average, with a typical fall of 0.96 per cent.
Cold snap: Looking at the data for every month over the past 40 years, September is the only one where investors ended up worse off on average: with a typical fall of 0.96 per cent
It was also the only one where investors were more likely to lose than gain, with 21 out of 40 years showing a drop.
Anyone feeling superstitious won’t be comforted by the fact many of the most dramatic falls — including Black Wednesday of 1992, and the 2008 collapse of Lehman Brothers — also took place in this month. The 1929 Wall Street Crash began in September, reaching its height over five days in October.
So is there any truth in the idea of a September slump?
Three weeks into the month and, unfortunately for investors, the pessimism appears to be holding up. The FTSE 100 and 250 have lost 2.36 per cent and 2.64 per cent respectively, while over in the U.S., the S&P 500 is down 3.61 per cent.
O f course, markets have had a lot to contend with, as inflation fears continue to bubble either side of the Atlantic.
Meanwhile, a liquidity crisis at the Chinese property developer Evergrande has rocked world markets — Wall Street suffered its biggest drop since spring.
To top it off, a surge in energy prices and tumbling mining stocks has hit the FTSE 100 in particular. The MSCI World Index, a general measure of world stock markets, is now down 2.81 per cent from August.
‘After a strong start to 2021, equities face numerous headwinds, including the prospect of central banks slowing down their stimulus programmes to combat inflation,’ says Tilney’s Jason Hollands.
‘Record high valuations of technology companies, rising corporate debt in the U.S., and renewed concerns about the Covid Delta variant are all reasons for extra caution.’
Before investors get too panicked, though, Mr Hollands is quick to clarify that there’s nothing inevitable about stocks suffering a bad September — despite what’s happening in the markets.
He also warns long-term investors against making sudden moves.
‘It is unwise to make major changes to your portfolio on the basis of “what if” scenarios that may not play out,’ he says.
Downward trend: Three week into September and the FTSE 100 and 250 have lost 3.37 per cent and 2.89 per cent respectively, while over in the U.S. the S&P 500 is down 2.01 per cent
But should the drop in momentum continue, he suggests more cautious investors might lean towards funds looking for quality firms able to sustain revenues and dividends.
He says: ‘UK funds to consider include the likes of Liontrust Special Situations, TB Evenlode Income and Threadneedle UK Equity Income.’
All three are established funds looking to back high-quality companies that can hold their value under different market conditions.
Over five years, Liontrust has turned £10,000 into £16,100. The same investment in the more cautious and dividend-focused Threadneedle would be worth £13,000.
TB Evenlode, which invests about 15 per cent of its capital in non-UK stocks, has returned £14,400 in the same period. All have beaten their benchmark.
Rob Burgeman, an investment manager with wealth managers Brewin Dolphin, advises a slightly different approach to potential volatility.
He says: ‘It’s important to remember that volatility works both ways: down and up.’
It’s a maxim that will ring true with investors who recall last year’s Pfizer Monday, when news of a successful vaccine sent stock markets into overdrive.
Mr Burgeman says: ‘Data shows that missing the ten best days of the year for equity returns can have an extraordinary impact on long-term returns.’
He points to research by investment bank JP Morgan, which suggests that investors who miss the best ten days of the year lose 50 per cent of potential annual returns.
Mr Burgeman adds: ‘Markets are, by nature, volatile. Trying to pick tops and bottoms is dangerous. What is important is time in the market — allowing your compounding returns to work their magic.’
But the experts all agree that the best rule is to ensure your portfolio is diversified, and suits your long-term financial goals.
That means seeking out quality investments from different stock markets, and thinking carefully about your appetite for risk.
If you’ve done this, your chances of suffering a bruising period are smaller — even in September.
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