If Edgar Allan Poe had been an investor, he might have placed his poem, “The Raven” in a bleak September rather than December, as no other month is as bleak for stocks.
The S&P 500 declines 0.99 percent on average in September, beating second-place May, which averages a mere 0.11 percent slippage.
Barron’s Magazine offers some hope for this year, noting that stocks typically rise 1.4 percent in September in years where the S&P has risen 13 percent in the first six months. This year, it rose 14 percent through June.
However, the remainder of this year has the feel of rocky possibilities, especially for consumer discretionary stocks as Covid fears rise again, and most especially for gaming stocks, many of which raced to all-time highs in the spring on what may prove to have been overly optimistic forecasts.
Meanwhile, as many gaming stocks came down to earth in recent months, the overall market has continued setting record highs.
For some perspective, as of this writing the Dow Jones Industrial Average year-to-date is up 17 percent, Nasdaq 20 percent and the S&P 500 22 percent.
Gamers rose more modestly. Fantini’s Global Top 30 Index of the world’s largest gaming stocks rose only 2.74 percent, the Interactive Index rose 5.76 percent, and the once high-flying sports-betting stocks deflated to the point where Fantini’s Sports Betting Index is up just 0.67 percent since New Year’s Day.
The best performer has been the North American Index, up 14.13 percent thanks to the rush of spending by American consumers and to investor confidence that casino operators can maintain lower operating costs even as business volumes return.
But there are signals that should take some of the complacency out of even the smuggest bulls.
The latest Covid scare is putting a big dent in air travel. Consumer confidence is down. Inflation is up. Stimulus checks are history. Ditto generous unemployment benefits.
That is not a recipe for unbridled consumer spending.
There also appears to be a growing unease among investors that the overall market is getting a little toppy, even though bulls note that price-to-earnings ratios are two turns lower than they were early in the year. The problem with that thinking is that profit growth appears to be slowing and those lower valuations actually might turn out to be higher if bullish forecasts fade.
It would be nice to think that if the overall market declines, gamers will be somewhat insulated, having already come down from their peaks. But it’s more likely they will sell off, too.
Nor is September the only month with a scary history. Get by September and we have to deal with October. Remember, the crashes of 1987 and 1989 occurred in October, as did the granddaddy of them all in 1929.
Here’s another sobering data point. Two of the S&P’s greatest years through September were in 1987 and 1989. October crashes followed.
History aside, at some point the stock market will fall. That doesn’t mean investors should shun stocks today. But they should prepare for the inevitable.
