Will September Rally Fizzle? History May Offer a Clue

A detailed review of history does suggestion options but it won't provide a precise roadmap.

Capital never ignores opportunity costs, so the study of unadjusted nominal returns can lead to faulty conclusions. The following historical analysis show not only risk free returns, or relative returns but also cyclical returns.

September and October tend to be weak performance months for small and large cap stocks. This is illustrated below:

Risk Free Total Returns* 1926-2010:


This dismal fall performance, however, turns extremely positive for the second year of the four year cycle. Relative weakness in September and October turns into strength. This is illustrated below:

Year Two of 4-Year Cycle Risk Free Total Returns* 1926-2010:

Even as economic fundamentals and regulatory uncertainty line up against stocks, Wall Street does have one thing in its favor for October: History.

Despite an improbable 9 percent rally in September — historically one of the market’s worst months — past trends suggest that a good performance in the month often leads to more strength in October.

Source: cnbc.com

Gold Seasonality

Be wary of experts suggesting that July and August are two weakest seasonal months for gold. It's not true. The time frame of July and August is neutral at best from a long-term seasonal perspective.

1925-2009 Seasonality:


When seasonality is further refined into the second year of the four year cycle, a must when doing comprehensive seasonality analysis, the characterization of the July and August time period turns from neutral to very positive.

1925-2009 Seasonality with the Second Year of the Four Year Cycle:


Fear of holding gold is easy to sell into price weakness. Don't let negative seasonality arguments erode confidence in this secular bull market.