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Posted on 22 August 2012 | 2,696 views

The September Curse of Stock Market Crashes Began in Early 1929

September is the “Worst Month for Stocks” and the reason September has been a dangerous month — companies and company analysts were generally too optimistic early in the year and then slashed their over-optimistic estimates in September, before third quarter earnings announcements season.

September of 1929, with a 9.7% decline — set the pattern for all future fears of September and October, so let’s take a brief look at the September prelude to that 1929 crash.

The Curse of 1929 Began in Early September

On September 3, 1929 — the Dow Jones index closed at 381.17, a level it would not see again for 26 years. The Dow lost 48% in 10 weeks and 89% in less than three years. Two days after that peak — on September 5, 1929 — Roger Babson, a market statistician with a reputation as a permanent bear said, Sooner or later, a crash is coming, it may be terrific, factories will shut down, men will be thrown out of work, the vicious circle will get in full swing and the result will be a serious business depression.

The Babson Curse has gone down in history as one of the greatest market calls, but he had been singing the same bearish tune since 1921. All the while, the Dow was multiplying by 500%. By 1929, Babson was clearly in the minority. In The Great Bull Market , economic historian Robert Sobel wrote, “In 1929, the leading economists of Harvard, Yale, Princeton, Ohio State, Michigan — one can hardly think of a major institution missing from the list — were believers in the bull market.” For example, Yale’s Irving Fisher said in 1929 that “stock prices have reached what looks like a permanently high plateau.”

Since 1929, some other scary Septembers — most recently, 9-11 in 2001 and the financial crisis of 2008 have created fears of September Stock Market Crashes, but the majority of recent Septembers have been positive.

September and October can be violent months so it might pay to add downside protection before the stock market crashes.

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