Should investors fear a September stock market slump?

September has historically been a poor month for investors. Since 1990 the average return from the FTSE All-Share index in September has been -1.2 per cent, the worst return of any month in the year.

It’s not all bad. Over the longer term, returns have been positive in September, while the market has only fallen in September in four of the past 13 years.

However, when the market does fall in September, the declines can be very large. The FTSE All-Share index has fallen by more than 8 per cent during this month in three years since 2000 (see chart). The big problem for investors is volatility; share price volatility is at its highest in September.

The situation is most acute for mid-cap stocks. Since 1986 the FTSE 250 index has underperformed the FTSE 100 index by 0.7 percentage points in September – making September, along with October, one of the worst months for mid-cap stocks relative to large caps. The market tends to drift lower for the first three weeks of September before rebounding slightly in the final week.

In contrast to equities, gold tends to perform strongly in September. Since 1968 the average return on gold in the month has been 1.8 per cent, making September the strongest month of the year for gold. Since 2000 the return has been even higher, at 2.3 per cent on average. Silver also tends to do well in September.

In the diary this month are the US non-farm payroll report (1 September), the closure of the New York Stock Exchange (on the 4th, Labour Day), a Monetary Policy Committee interest rate announcement (14th) and ‘triple witching’ (15th).

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