It’s not the first time I have mentioned September being one of the year’s weakest months for stock returns. It should come as no surprise then that Septembers of the Presidential cycle are the weakest. What is interesting, is September in the second year has historically been the weakest month in the 4-year cycle.
It is theorized
In years one and two of a presidential term, the President exits campaign mode and works hard to fulfill campaign promises before the next election begins. It is theorized that because of these circumstances surrounding the President's work, the first year after their election is the weakest of the presidential term, with the second year being not much better.
This trend of initial economic weakness was thought to be true because campaign promises in the first half of the presidency are not typically aimed at strengthening the economy. Instead, political interests, such as tax law changes and social welfare issues tend to be highest priority.
In years three and four of a Presidential term, it is thought that the President goes back into campaign mode and works hard to strengthen the economy in an effort to earn votes with economic stimulus, such as tax cuts and job creation. As such, the third year had often been the strongest of the four-year term and the fourth year, the second-strongest year of the term.
Seems like Trump may throw a monkey wrench in this theory as he seems to have gotten it backwards. I have been on both sides of seasonality patterns and have found that other than the rare fat tail, a 1.43% average loss is well within normal acceptable market monthly wiggle. This is especially true when you look at the historical patterns that follow September’s weakness… A big rally. Market draw-downs are both normal and healthy so if September turns out to be one, it’s time to put on our big-boy pants and suck it up --- we’re in an uptrend.