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Is September still the worst month for stocks?

Historically, investors could not wait for September to end. Looking through a window of the past 60 years, Yahoo Finance Markets Reporter Jared Blikre breaks down how September has weighed on stocks in the S&P 500 while explaining spiking volatility and trading volumes in end-of-summer trends.

Video transcript

[AUDIO LOGO]

BRAD SMITH: Stocks closed out August in rally mode after falling for much of the month. After a choppy month of August, stocks are now gearing up for what is historically the worst month of the year for the S&P 500. Will September be as bad as expected? That's the big question here. Here with more and the crystal ball, live from the New York Stock Exchange, Jared Blikre. Hey Jared.

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JARED BLIKRE: Hey. My crystal ball only extends backwards in time, but it does help give us a little bit of a glimmer of what might be on the horizon here. So let's take a look at the S&P 500 on the YFi Interactive. This is performance by month. And I have September, October, November, December each represented as a different line going back to 1960.

What stands out is September. That's this purple line down here. If you had $1,000 and put that money into the market only in Septembers going back to 1960, you would now have about $600, or it would be worth 40% less. Then you compare that to October, that's that cyan line up here. By the way, October has quite a big number of dips here, and that's because October is prime time crash season. I've been talking about that as well.

But then November and December, two of the better months of the year, those tend to end on highs. And December specifically usually sees that Santa Claus effect. Not to get too far ahead of ourselves here, I just want to show what the VIX usually does. I mentioned prime time crash season. Well, we usually see the VIX peaking in October. That's this biggest purple bar here. That is the average VIX going back to 1990. That was the inception of calculation. The cyan line is what's happening this year.

So if we were to trace out that pattern, well, we might expect a few more hiccups into October, but not necessarily a crash because one of the things I was looking at when I was parsing the statistics here is that when we have a really good year through July, but then we fall off in August, the S&P 500 usually does pretty well at September, October, November, and December.

And here are these stats that are showing that-- January through July, green, August, red, and then September, 82% positive. I only have 11 instances going back in time, but October 64%-- that's 7 out of 11. Then it gets better in November, 73% positive, and December, 91% positive. So it could be for whatever reason, and I noted this when you were talking before, Julie, about how some of these crash years tend to drop off.

Well, as it stands crash years tend to drop off my radar when we have these big outside gains through July and we see these declines in August. So interesting combination there. But of course, we'll have to see how the future is exactly written, I guess, in the future.

JULIE HYMAN: Yeah. We'll have to wait, unfortunately. That's the thing about the future. Jared, one of the other dynamics, of course, that we watch in this August to September transition is people coming back from summer vacations, more trading volumes. What can you tell us about what to watch there?

JARED BLIKRE: It's no secret that the summer sees lower liquidity, and that's simply because an absence of traders. We have a lot of traders-- the old adage on Wall Street is sell in May and go away. I like to say, hedge in May and go away, because that more accurately describes what some of the larger players like to do in the market. They don't want to tend to their positions and nurse them night-- day after day over those summer months. So they largely put them as much as they can on autopilot.

And then we see a resurgence of liquidity in September when people have decided, for whatever reason historically, that September is a month when you rejigger your positions, and so we find a return of liquidity in the month of September. I have a chart of this on the YFi Interactive. This is NYSE volume seasonality by month. Here we have January at the far left edge, and then January again at the far right edge. So we can see how the December-January transition goes.

But you can see we are trending lower typically from about March into the beginning of September, and then we see this big increase here and we kind of stay at this higher volume level until we drop off precipitously in December, but that's simply because of more vacation time. So I would expect-- and this has to do with that VIX seasonality that I was showing here too-- because we have enhanced liquidity in September, that's when we're more likely to see a market crash, a major market dislocation as traders change their bets on the market.

I got one more chart here on the YFi Interactive. This is treasury liquidity. So this is liquidity in the bond market-- not the stock market. This usually gets worse in August. That was-- I just pulled this out of my files here, but you can see liquidity improves in September. This improvement here we can see for going back to, I believe, 2000. And then October a little bit better, and then treasury market liquidity itself dies off into November, December.

Just want to close here by telling what we have done lately. So not just looking at 30, 40, 50 years in the past, but what we have done lately. Here is a VIX. We are coming off some very low levels. Friday, was that-- was that a game-changer event? I don't think so. But really interesting to see we do have a little bit of an uptick in volatility there. Looking at the 10-year T-note yield, that is up about 6 basis points as well. Firmly above 4%, so maybe challenging those highs. I think September is going to be a really interesting month to watch here.