WEBVTT - Here's Why Calendar Months Matter to Markets

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news.

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<v Speaker 2>I'm Stephen Carol and this is Here's Why, where we

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<v Speaker 2>take one news story and explain it in just a

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<v Speaker 2>few minutes with our experts here at Bloomberg. Markets have

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<v Speaker 2>their own seasons. Central bank decisions and company results may

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<v Speaker 2>be key dates in the calendar, but just like for

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<v Speaker 2>the weather, the month of the year can really matter. Well,

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<v Speaker 2>the January effect is in full forces.

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<v Speaker 1>I mean, August, there's nobody there, Volumes are out loads.

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<v Speaker 1>It always tends to be a little bit of a

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<v Speaker 1>bull at all time. Anyway, September though typically on average,

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<v Speaker 1>not a good month for stocks.

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<v Speaker 2>So January is traditionally a good month for the stock market.

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<v Speaker 2>September's bad. Wall Street lower points to historical market crashes

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<v Speaker 2>happening in October. But are these trends always born out

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<v Speaker 2>in reality? And do money managers pay any attention to them?

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<v Speaker 2>Here's why the calendar month matters to markets. Our Market's

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<v Speaker 2>Life Managing editor, Christina Quino, joins us now for more.

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<v Speaker 2>Hey Christine, what does the data tell us then about

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<v Speaker 2>good and bad months for the markets?

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<v Speaker 1>Well, Steven, I mean these are lore for a reason, right,

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<v Speaker 1>and so we do have a history of certain months

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<v Speaker 1>being particularly good or particularly bad for markets. So if

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<v Speaker 1>we're talking about September specifically, there is quite a long

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<v Speaker 1>history of this month just being a source of upheaval

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<v Speaker 1>and volatility across asset classes. For instance, we've seen the

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<v Speaker 1>S and P five hundred fall every single September since

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<v Speaker 1>the nineteen fifty so that's quite a good bit of

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<v Speaker 1>history there. And meanwhile, bonds have been particularly having a

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<v Speaker 1>bad time every September for the last ten years, and

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<v Speaker 1>gold as well has dropped every single September since twenty seventeen,

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<v Speaker 1>And so there is a little bit of lore here.

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<v Speaker 1>There is a little bit of history here, and I'm

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<v Speaker 1>sure that's feeding into market psychology in addition to all

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<v Speaker 1>the other real time catalysts that we're facing at the moment.

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<v Speaker 2>Yeah, can we determine what it is that I suppose

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<v Speaker 2>drives these trends or is it those last minute issues

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<v Speaker 2>of those kind of surprises for markets.

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<v Speaker 1>Well, I think it's a little bit of a combination

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<v Speaker 1>of human psychology but also the cycle of markets throughout

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<v Speaker 1>a calendar year, right, because the summer period, particularly over June,

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<v Speaker 1>July and August, tends to be quite upbeat for markets.

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<v Speaker 1>That's when we would get some of the summer season earnings,

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<v Speaker 1>and those tend to be quite upbeat in terms of

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<v Speaker 1>the outlooks for the rest of the year, and also

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<v Speaker 1>just generally the mood and markets tends to be a

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<v Speaker 1>bit more optimistic, probably because traders are off to their

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<v Speaker 1>various vacations around the world and maybe a little less

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<v Speaker 1>volumes and volatility, and so it doesn't really take much

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<v Speaker 1>to drive markets, and oftentimes a direction of that drive

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<v Speaker 1>tends to be higher. And so when we get into September,

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<v Speaker 1>there's definitely this sort of back to school feeling that

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<v Speaker 1>we get in markets, and so that's when traders come

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<v Speaker 1>back from their vacations, they take a look at their

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<v Speaker 1>books and then they realize, huh, maybe it's time to

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<v Speaker 1>de risk in some assets and also reconsider some of

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<v Speaker 1>their positions in their portfolios as they head into the

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<v Speaker 1>final months of the year.

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<v Speaker 2>So how do investors tend to deal with these broad

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<v Speaker 2>trends on markets? Is there an argument for everyone just

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<v Speaker 2>taking September off to try and avoid this.

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<v Speaker 1>I'm sure people can take September off, they would, but

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<v Speaker 1>the problem is they've already taken most of August off,

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<v Speaker 1>and so September's kind of a return to reality for

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<v Speaker 1>a lot of people in markets. The tendency for markets,

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<v Speaker 1>as with any sort of big trend that's difficult to counteract,

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<v Speaker 1>is sell first and ask questions later. And we've seen

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<v Speaker 1>it time and time again, and I think that's what

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<v Speaker 1>feeds into this lore of September being bad for markets

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<v Speaker 1>as well, because that's kind of ingrained in market psychology,

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<v Speaker 1>just because of the history that we've seen and how

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<v Speaker 1>it has been quite bad for different asset classes over

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<v Speaker 1>the last few decades. And this awareness again of the

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<v Speaker 1>fact that there's only now a few months left to

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<v Speaker 1>the year. That combination really just drives a lot of

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<v Speaker 1>people in markets to de risk and rethink some of

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<v Speaker 1>their positions and their views heading into the final push

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<v Speaker 1>for the year.

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<v Speaker 2>What are the sorts of events that can contradict these

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<v Speaker 2>usual trends, the exceptions that prove the rule.

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<v Speaker 1>Maybe there are exceptions in terms of kind of the

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<v Speaker 1>year that we're having, right I think it depends on

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<v Speaker 1>the vibe I suppose from various central banks and policy

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<v Speaker 1>across the globe, and whether there's a particularly big event

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<v Speaker 1>in a particular year like elections, for instance, tend to

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<v Speaker 1>uphen some of these trends as well, just because there's

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<v Speaker 1>that extra catalyst that investors are positioning for. These tend

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<v Speaker 1>to happen, of course, toward the end of the year,

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<v Speaker 1>at least when we're talking about US presidential elections for instance,

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<v Speaker 1>which this particular year is. This is something that could

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<v Speaker 1>potentially upset the historical trends that we've seen, just because

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<v Speaker 1>it's another additional catalyst that investors have to consider in

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<v Speaker 1>addition to the seasonal trends that we're already seeing this year.

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<v Speaker 2>Of course the US presidential election, as you point out,

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<v Speaker 2>but we're also in this very particular moment for central

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<v Speaker 2>banks where we're very focused on the path of interest

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<v Speaker 2>right cuts in some cases first interest rate cuts from

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<v Speaker 2>big central banks. Is that the sort of thing that

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<v Speaker 2>could mean none of the usual rules apply when we're

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<v Speaker 2>thinking about seasonal trends in twenty twenty four.

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<v Speaker 1>Well, it's certainly a factor that could be a wildcard seven,

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<v Speaker 1>that's for sure, just because, as you mentioned, it's the

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<v Speaker 1>first rate cutting cycle that we've seen in a while,

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<v Speaker 1>and markets are very different now compared with just a

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<v Speaker 1>few years ago, even just two years ago, they were

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<v Speaker 1>contending with massive rate hikes from the Federal Reserve and

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<v Speaker 1>various other central banks and runaway inflation. That's a very

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<v Speaker 1>different picture now, right, there's the sense of inflation is

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<v Speaker 1>mostly under control, and that's why center banks have that

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<v Speaker 1>confidence to push toward rate cuts. But then the last

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<v Speaker 1>time that we've seen rate cutting cycles as well slightly different. Right.

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<v Speaker 1>These tend to come during recessionary periods, which arguably we're

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<v Speaker 1>not particularly in at the moment, at least not when

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<v Speaker 1>you look at some of the recent data out of

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<v Speaker 1>the US and other major economies. Yes, there are signs

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<v Speaker 1>of a bit of a slowdown in these various economies,

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<v Speaker 1>but nowhere near that kind of large downturn that precipitated

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<v Speaker 1>a lot of previous cutting cycles. And so you know,

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<v Speaker 1>we are headed into another one this time around, and

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<v Speaker 1>there are some similarity, some trends that you can point to,

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<v Speaker 1>but it's a very different environment in terms of just

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<v Speaker 1>the overall health of the global economy now versus in

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<v Speaker 1>previous cycles.

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<v Speaker 2>So it's worth paying attention to the month and to

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<v Speaker 2>the year. Thank you very much, Christine Aquino, our Markets

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<v Speaker 2>Live managing editor. For more explanations, like this one from

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<v Speaker 2>our team of twenty seven hundred journalists and on us

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<v Speaker 2>around the world. Search for Quick Take on the Bloomberg

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<v Speaker 2>website or Bloomberg Business app. I'm Stephen Carol. This is

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<v Speaker 2>here's why. I'll be back next week with more. Thanks

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<v Speaker 2>for listening.