• Traditionally poor equity performance in September
• Weak stock market month only partly justifiable
• Andrew Graham bullish on September 2022
Looking at stock market history, September is not one of the months that trigger storms of enthusiasm among investors when it comes to stock market performance. In fact, the stock markets are traditionally weak during this period. Historically, September is the weakest stock market month of the year for stock investors.
Reasons for the weak September performance
Three arguments are often put forward as reasons for the traditionally negative September performance on the stock market: Many investors are returning from their summer vacation this month. In the summer months, trading often takes place with less turnover, and when investors return, they would often rearrange their investments. In addition, the financial year ends for some mutual funds in this month, so they often part with unprofitable investments shortly before the end of the financial year or take profits on stocks that have performed well. In addition, school and university years often begin in September, a time when money is tight for many families.
However, this argument is not fact-based. After all, for the majority of mutual funds, the financial year ends at the end of December, so window dressing effects are more likely to have a major impact in the last stock market month of the year. And the return of traders from the summer holidays only explains the historically weak September development to a limited extent, after all, investors who want to enjoy their summer vacation without the distractions of the stock market should position themselves accordingly in the run-up to the break. In times of online trading and Internet flat rates, all other investors have access to their investments from anywhere at any time and can also adjust them on vacation.
The reason why stocks perform worse in September than in other stock market months could meanwhile be due to the concept of a “self-fulfilling prophecy”: because investors, looking at history, expect that development and are already preparing for a weak September and acting accordingly to avoid possible losses limit.
Jackson Square Capital founder Andrew Graham told CNBC that September’s poor performance was more technical. Analysts who were disproportionately bullish at the start of the year would have to lower their forecasts over the course of the year – they often do so after the end of the reporting season for the second quarter. These forecast reductions would lead to a reduction in risk positions, especially among institutional investors in the following month – September – which could explain the weak development.
Expert believes in exceptional September 2022
According to Graham, September 2022 could turn out better than is commonly expected. “This is because much of the de-risking has already happened thanks to the historic collapse in the first half of 2022,” the expert wrote in a CNBC comment. As such, many stocks would get even cheaper once analysts conclude they are downgrading this time around. At that point, institutional investors would step in and be more active than usual, the expert believes.
In his argument, Graham refers in particular to the semiconductor market as a blueprint for the share price development in September. When Micron Technology lowered its growth forecast in June, analysts had already lowered their price targets. Nevertheless, Micron stock improved significantly in the weeks that followed because it had already been severely punished at the start of the year. This can also be applied to the market as a whole: “Actually, much of the bad news is already priced in, while the cuts in forecasts are a sign that the bottom is near or has already been reached,” explains Graham.
“Current asset prices reflect future events,” Graham said, referring to institutional investors who are focused on what could happen rather than what has already happened. The strong downturn at the beginning of the year can therefore be explained by the fact that professional investors had already adjusted their allocations months ago in anticipation of the forecast reductions.
Interest rate development in view
The current market developments are therefore “old news” for institutional investors, who, according to Graham, are already focusing on other events. The interest rate policy of the Fed, for example, will end the tightening of the monetary policy expected. “If this is the case, institutional investors will allocate capital with a view to late next spring, when the Fed may cut rates,” the analyst believes.
Against this backdrop, some stocks that fell sharply at the start of the year could now be attractive entry options, “mainly because their valuations already reflect further rate hikes.”
Graham sees “undoubtedly further surges in volatility in the coming quarters”, but the Jackson Square Capital founder is cautiously optimistic about the stock market month of September: It is “reasonable to expect a better than usual September”.
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