Posted on 09/04/2012
One asset in particular that receives a lot a credit for helping investors through the month of September is Gold, and a look at the historical numbers support this statement. Since 1987, gold has posted a positive return in the month of September 19 out of the 25 years. In other words, 76% of the time September is a positive month for gold, with an average gain of 5.06% during those 19 months. All told, gold has produced an average gain of 2.66% during the month of September. In the table below you will also see the September returns for different asset classes as far back as we have data in our system. Not surprisingly, it is typically the asset classes that are less correlated to the equity market (such as Gold, Crude Oil, Bonds, and Real Estate) which provide the best returns. Interestingly enough, every asset class historically has a greater probability of producing a gain for the month of September than it does at producing a loss with the exception of US Stocks. However, when you look at the two International Equity components of this table (the developed and emerging stock indexes), even though they show a greater probability of having a positive September, the losing years far outweigh the winning years in terms of magnitude. For instance, developed international stocks have seen gains in 53.1% of the Septembers going back to 1980, producing an average return of 3.49%. However, during the 46.9% of the years when this index showed a loss for the month of September, the average return was 5.48%.
Perhaps another interesting observation is how some of the relative strength based indices have historically performed during the month of September. The PowerShares DWA Technical Leaders Index ETF (PDP) has actually managed to post a gain in roughly two-thirds of Septembers since 1997 and has shown an average return of 0.29% for all Septembers, which compares to a -1.16% return for the S&P 500. So, while September tends to show dismal returns for the major domestic equity indices not all is necessarily lost, as the historical returns of the PDP suggest there are likely areas of opportunity. The bottom line is that we have absolutely no way of knowing whether this September is going to be a positive month or a negative month; and the good part about that is that we don’t have to predict. We have indicators that are grounded in the irrefutable law of supply and demand that will guide our investment decisions. As it stands now the vast majority of our risk indicators for the equity market remain positive.