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Understanding September’s Seasonal Trends in the Australian Share Market
This article continues our exploration of seasonality in the Australian share market. In Part 1, we established that the All Ordinaries Total Return Index (XAOA) is the most reliable index for seasonal analysis, considering both capital gains and dividends, which are inherently seasonal.
Historically, September is known to be the weakest month for the Australian Securities Exchange (ASX), ushering in a period of increased volatility marked by substantial price fluctuations. This analysis will draw on various lookback periods—30, 20, 10, and 5 years—and investigate whether the performance in July and August affects September’s outcomes. Given that July and August are typically robust months, it’s intriguing to see how this year’s strong 5% rally in the ASX 200 could impact September’s performance.
Key Takeaways from Prior Analysis
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Use Total Return for Accurate Analysis: Analysis should focus on total returns rather than price-only indices. Ignoring dividends can mislead interpretations.
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September as an Outlier: With an average return slightly negative over 40 years, September stands out as the only month lacking a positive long-term average. It has the lowest average gain reliability.
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October’s Misleading Reputation: Despite historical upheavals in October, the long-term average for the month is modestly positive, counter to its fearful reputation.
- Reasons for September’s Weakness: Various factors likely contribute to September’s poor performance: investor fatigue post-reporting, global market dynamics, and the tendency for price reversion after strong summer months.
Analyzing Shorter Lookback Periods
This analysis extends to shorter timeframes, revealing trends in recent data:
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30-Year Analysis: September remains slightly negative, but now shares this status with May. The ongoing pattern reflects a strong early year followed by seasonal declines in May through October.
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20-Year Analysis: The average loss in September deepens to -0.33%. This reinforces the "September Swoon" narrative, with reliability data showing gains at 55%.
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10-Year Analysis: Average September losses grow to -1.2%, and reliability dips below 50%, indicating more down months than up.
- 5-Year Analysis: Here, September’s decline intensifies to -2.2%, with four of the last five Sepembers resulting in losses.
The Consistent September Swoon
The analysis strongly supports the existence of a "September Swoon." Observations confirm that as the lookback period decreases, September tends to yield worse outcomes, suggesting a drawn-out tendency towards downturns.
The Impact of July and August on September
A significant aspect of our analysis is whether the performance of the stock market in July and August influences September’s results. Reviewing longer trends (40, 30, and 20 years), a pattern emerges where strong July-August performance tends to mitigate the September Swoon, while weak July-August leads to intensified declines.
Despite the XAOA’s 5.8% performance over July-August this year, the shorter-term lookback data suggests September may still face challenges. We must remain cautious; both historical trends and recent data indicate that weakness in September is likely.
Conclusion: Strategic Outlook for September
Seasonality serves as a framework for market behaviour, highlighting potential periods of opportunity or caution. While current analyses suggest a general foundation of strength, the historical pattern of September leads us to proceed cautiously.
Close monitoring of market indicators such as the trend and price actions in the coming weeks will be essential. As the market adapts, changing conditions may either reinforce or challenge the anticipated September disappointments. Investors should heed historical lessons while remaining vigilant for shifts in market sentiment and performance.
