Welcome to September, the Worst Month for Equities Since 1928

August is in the books and here comes September. Here’s what happened last month (or in the case of August 2016, didn’t happen) and what to look forward to in September.

August Recap

  • The S&P 500 Index (price return) finished down 0.12% in August, ending the monthly win streak at five straight months. In the end, this month will be remembered as a month of historically low volatility, as we discuss in more detail below.
  • Looking at how various sectors did, financials were the big winner last month, up 3.8%, with energy the next closest at 1.7%. The big losers were utilities and telecom, down 5.5% and 6.6% respectively. This month was all about rates. Over the month, several Federal Reserve (Fed) speakers highlighted that a September rate hike was still a live option, helping financials jump higher, while high-yielding assets like utilities and telecom sold off hard.
  • The S&P didn’t close up or down 1% or more for the entire month. The last time that happened in August was 1995. In fact, it has now been 38 straight days without a 1% move – the longest streak since 62 days in a row during the summer of 2014.
  • Incredibly, from August 3 to August 25 there was a streak of 17 straight days with a daily range of less than 0.75%. Going back to the start of reliable intraday data in 1970, that was the longest streak ever.
  • Using daily closes, the S&P 500 in August traded in a range of only 1.54%. This was the tightest monthly range since August 1995 at 1.22%. Going back to 1928, only six months (out of 1,064) had a smaller monthly range.

September Preview

  • September is historically the worst month for the S&P 500. Going back to 1950, the average return has been a loss of 0.52% with a positive return for the month only 44% of the time. Going back to 1928, the return drops to -1.06% on average and again positive 44% of the time. But the past 10 years September has been near the middle of the pack, up 0.3% on average and higher six times.

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  • What happens after historically tight monthly ranges? As mentioned above, only six months ever traded in a smaller range than August 2016. What happened next? The following month was up five times and the average return was an impressive 1.9%.
  • What about if the S&P 500 is in an uptrend heading into September? Since 1950, if the S&P 500 is up year to date, above its 200-day moving average, and higher over the previous six months heading into September (which are all true in 2016), then September has been up an average of 1.2% and higher 56% of the time.
  • When the S&P 500 is down year to date, beneath its 200-day moving average, and down the previous six months, the index has performed poorly in September, down 2.7% on average and higher only 32% of the time.

In conclusion, August traded in a historically tight range and the odds of that happening again in the usually volatile month of September may be slim. But should you worry about a big drop in September? Sure, anything is possible, but the majority of the largest September drops took place when the market was weak heading into the month – the good news is the trend in 2016 heading into September is rather strong.

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

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