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I'm Stephen Carol and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg. Markets have their own seasons. Central bank decisions and company results may be key dates in the calendar, but just like for the weather, the month of the year can really matter. Well, the January effect is in full forces.
I mean, August, there's nobody there, Volumes are out loads. It always tends to be a little bit of a bull at all time. Anyway, September though typically on average, not a good month for stocks.
So January is traditionally a good month for the stock market. September's bad. Wall Street lower points to historical market crashes happening in October. But are these trends always born out in reality? And do money managers pay any attention to them? Here's why the calendar month matters to markets. Our Market's Life Managing editor, Christina Quino, joins us now for more. Hey Christine, what does the data tell us then about good and bad months for the markets?
Well, Steven, I mean these are lore for a reason, right, and so we do have a history of certain months being particularly good or particularly bad for markets. So if we're talking about September specifically, there is quite a long history of this month just being a source of upheaval and volatility across asset classes. For instance, we've seen the S and P five hundred fall every single September since the nineteen fifty so that's quite a good bit of
history there. And meanwhile, bonds have been particularly having a bad time every September for the last ten years, and gold as well has dropped every single September since twenty seventeen, And so there is a little bit of lore here. There is a little bit of history here, and I'm sure that's feeding into market psychology in addition to all the other real time catalysts that we're facing at the moment.
Yeah, can we determine what it is that I suppose drives these trends or is it those last minute issues of those kind of surprises for markets.
Well, I think it's a little bit of a combination of human psychology but also the cycle of markets throughout a calendar year, right, because the summer period, particularly over June, July and August, tends to be quite upbeat for markets.
That's when we would get some of the summer season earnings, and those tend to be quite upbeat in terms of the outlooks for the rest of the year, and also just generally the mood and markets tends to be a bit more optimistic, probably because traders are off to their various vacations around the world and maybe a little less volumes and volatility, and so it doesn't really take much to drive markets, and oftentimes a direction of that drive
tends to be higher. And so when we get into September, there's definitely this sort of back to school feeling that we get in markets, and so that's when traders come back from their vacations, they take a look at their books and then they realize, huh, maybe it's time to de risk in some assets and also reconsider some of their positions in their portfolios as they head into the final months of the year.
So how do investors tend to deal with these broad trends on markets? Is there an argument for everyone just taking September off to try and avoid this.
I'm sure people can take September off, they would, but the problem is they've already taken most of August off, and so September's kind of a return to reality for a lot of people in markets. The tendency for markets, as with any sort of big trend that's difficult to counteract,
is sell first and ask questions later. And we've seen it time and time again, and I think that's what feeds into this lore of September being bad for markets as well, because that's kind of ingrained in market psychology, just because of the history that we've seen and how it has been quite bad for different asset classes over the last few decades. And this awareness again of the fact that there's only now a few months left to
the year. That combination really just drives a lot of people in markets to de risk and rethink some of their positions and their views heading into the final push for the year.
What are the sorts of events that can contradict these usual trends, the exceptions that prove the rule.
Maybe there are exceptions in terms of kind of the year that we're having, right I think it depends on the vibe I suppose from various central banks and policy across the globe, and whether there's a particularly big event in a particular year like elections, for instance, tend to uphen some of these trends as well, just because there's
that extra catalyst that investors are positioning for. These tend to happen, of course, toward the end of the year, at least when we're talking about US presidential elections for instance, which this particular year is. This is something that could potentially upset the historical trends that we've seen, just because it's another additional catalyst that investors have to consider in addition to the seasonal trends that we're already seeing this year.
Of course the US presidential election, as you point out, but we're also in this very particular moment for central banks where we're very focused on the path of interest right cuts in some cases first interest rate cuts from big central banks. Is that the sort of thing that could mean none of the usual rules apply when we're thinking about seasonal trends in twenty twenty four.
Well, it's certainly a factor that could be a wildcard seven, that's for sure, just because, as you mentioned, it's the first rate cutting cycle that we've seen in a while, and markets are very different now compared with just a few years ago, even just two years ago, they were contending with massive rate hikes from the Federal Reserve and
various other central banks and runaway inflation. That's a very different picture now, right, there's the sense of inflation is mostly under control, and that's why center banks have that confidence to push toward rate cuts. But then the last time that we've seen rate cutting cycles as well slightly different. Right. These tend to come during recessionary periods, which arguably we're not particularly in at the moment, at least not when you look at some of the recent data out of
the US and other major economies. Yes, there are signs of a bit of a slowdown in these various economies, but nowhere near that kind of large downturn that precipitated a lot of previous cutting cycles. And so you know, we are headed into another one this time around, and there are some similarity, some trends that you can point to, but it's a very different environment in terms of just the overall health of the global economy now versus in previous cycles.
So it's worth paying attention to the month and to the year. Thank you very much, Christine Aquino, our Markets Live managing editor. For more explanations, like this one from our team of twenty seven hundred journalists and on us around the world. Search for Quick Take on the Bloomberg website or Bloomberg Business app. I'm Stephen Carol. This is here's why. I'll be back next week with more. Thanks for listening.