Back to School: but don’t get schooled
Fact: over the past 100 years, September is the only month that exhibits negative returns on average for the stock market (think about that for a second). Some call this the "September effect”.
One theory is that "investor inattention" during holidays slows the incorporation of news, specifically negative news. We believe this is especially true during the lengthily summer holidays when most people are really "checked out" for a prolonged period of time. Moreover, nobody wants news, led alone negative news, when they are trying to have a good time. It’s just simple human psychology - we are trying to forget reality for a while in a very connected, instantaneous environment.
As a result, studies have illustrated that markets react slower to negative news during school holidays. Additionally, it has also been observed that short sale activities are constrained during holidays given the technical attention required. It takes effort, costs more than being long (the borrow), and closing your eyes may be a recipe for disaster. Of course there are exceptions - just ask Elon Musk.
After the Labor-Day long weekend we all need to check back in. Kids are back in school and we have to catch up on everything we ignored for the last two months. Be aware of your perceptions in the next couple weeks. You are likely a little more cautious, suspicious, and alert to risks.
Now think of the market psychology as a whole. It makes sense that it behaves a little different. The question becomes what did we miss? How do we protect ourselves?
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