Last September was not a lot of fun. Fortunately it set us up for a great October and a strong finale into the new year. Small wonder that September is challenging. September’s historical record is dismal. According to Market Watch, since 1896 when the Dow Jones Industrial Average (US:DJIA) was created, the Dow has lost an average of 1.07% in September. The average gain for all other months is 0.71%. That spread of 1.78 percentage points is statistically significant at the 95% confidence level that statisticians often use to determine if a pattern is most likely genuine.
Yes, that statistical quirk and $3.95 can get you a latte at Starbucks. Seriously though traders have their superstitions and September is one of mine. I also believe that the market usually figures out a way to screw the most people most of the time. This year September could be very different. For starters everyone is aware of September’s poor performance record. And right now we are coming off of a blistering August so traders will be quick to take profits. One difference though is that we don’t have a close Presidential race ever September. The Republican convention begins August 27th with the popular and charismatic Governor Christie of New Jersey opening the widely anticipated event.
So how could September play out? First of all we have blogged repeatedly about how cheap many big cap blue chips are based on the DCF model and a 2% risk free rate of return on the U.S. Treasury. If you haven’t seen our analysis, I urge you to look at it now. I can say with much confidence that most market participants on CNBC seem to think that a Romney Presidency would be bullish for stocks. For starters the capital gains and dividend tax hikes expected to happen in 2013 would likely get postponed or abandoned altogether. Most analysts believe Romney would create a far more hospitable business climate as well. My prediction is that the energized Romney/Ryan ticket will get the usual convention bounce and pull even or surge ahead of President Obama in the polls. This could lead to a September surge on the back of August’s strong performance.
Of course there are always things that could challenge this thesis. Europe can always disappoint now that leaders will be back from Summer vacations. Yet there is also the possibility of the Fed and the ECB providing a bold round of stimulus. Combined with the Romney surge, September might be quite different this year. At least during the first week we might just see a September surge instead of the usual swoon.