September has a well-earned reputation as the worst month of the year for the stock market. But with August performing so poorly I wondered how that might affect September’s performance. The SPX finished August down 4.7%. Below I conducted a study showing how September has performed following August returns worse than X%.

[1]

While we’re not looking at a huge number of instances it does appear that going into September on a bad note in the past has not alleviated any risk. The worse August was the worse September was. Below I’ve listed the 7 instances where, like now, August finished down over 4%.

[2]

What stands out to me here is the size of the drawdowns. Four of seven instances saw September swoons of over 8%. While not statistically significant, I do think this is worth considering.

For those interested in reading more about September tendencies, I'd suggest checking out the below MarketSci post from yesterday.

http://marketsci.wordpress.com/2010/08/31/ugly-september/ [3]