September Has Been Weak, but Momentum Has Been Strong: Understanding Momentum Seasonality
September has historically been one of the weakest months for the S&P 500. The momentum factor, on the other hand, has historically been very strong in September.
The momentum spread measures the difference between a basket of high momentum and low momentum stocks. A positive spread indicates the leaders are outperforming the laggards. The spread is 50% long and 50% short so it truly measures the performance of the momentum factor. September has historically been a strong month for the leaders to outperform the laggards.
The returns above are not inclusive of transaction costs. Investors cannot invest directly in an index or a model portfolio. Indexes and models have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is not a guarantee.
There are two pieces of the spread. The high momentum piece has historically returned less than average during September. However, we are getting the time in the calendar when high momentum begins to ramp up, and has historically been strong from now through the end of the calendar year.
The returns above are not inclusive of transaction costs. Investors cannot invest directly in an index or a model portfolio. Indexes and models have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is not a guarantee.
The laggard side of the spread is what has really driven the spread. September has historically been the worst month for the laggards.
The returns above are not inclusive of transaction costs. Investors cannot invest directly in an index or a model portfolio. Indexes and models have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is not a guarantee.
September has historically been a difficult month for the broad market. Momentum, as a factor, has performed well during September. This has primarily been driven by laggard underperformance in the weak broad market periods. During periods like this, it is very important to shed any lagging stocks and continue to upgrade to stronger names. On average, weak Septembers have been accompanied by laggard underperformance, while leaders have outperformed.
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The Dorsey Wright Sector Indexes are non-investable, equal weighted baskets of stocks including the largest and most liquid names from within each sector. The indexes are rebalanced daily and do not include the reinvestment of dividends. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
Unless otherwise stated, the performance information included in this article does not include dividends or all potential transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
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Dorsey Wright’s relative strength strategy is not a guarantee. There may be times when all assets are unfavorable and depreciate in value. Relative Strength is a measure of price momentum based on historical price activity. Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon to be successful or outperform any index, asset, or strategy.
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