With the summer near end and the kids back in the classroom (unless you’re in BC) investors are looking to the latter four months of the year to see how 2014 will shape up. The TSX has enjoyed solid returns year-to-date, up over 14% since the start of the year, which is the best performance we have seen from the index since 2009. When we remove 2009 from the equation, which had the significant advantage of picking of the pieces of a 35% decline in the previous year, we would have to go all the way back to 2005 to find an 8 month period from January to September that was as astoundingly profitable for investors.
But right now, there is a bit of a debate surrounding the markets about whether or not they are primed for a correction. Many expected to see a full force correction in the summer but to their surprise, the market largely chugged forward. With the summer now beyond us, look to the fall for a possible pullback.
There is also some discussion that September and October are notably poor months for the market. There is even a theory called the “October Effect” which states that stocks tend to decline in the month of October. At KeyStone, we always urge investors to look at the markets from a long-term perspective and warn against employing seasonal strategies. But from a purely informational perspective, it is always a little fun to go back through time and size these proclamations up against actual statistical evidence.
The table below provides month’s percentage price returns for September and October over a 10 year period from 2004 to 2013.
What this data tells us is that from a historical perspective (at least over the last 10 years), the months of September and October actually produce good returns, with both months ending positive in 7 out of 10 years. Now this isn’t to say that history will repeat itself in 2014. We have enjoyed very solid returns through the summer in absence of strong economic data which would indicate that the market may be poised for a healthy correction. But the next time you hear someone talk about September and October being bad times to be in the market or the “October Effect,” you will know that the proclamations are not backed up by the data.
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