Wall Street investors brace for another ugly September

CHICAGO - The economy is weakening, home sales are plunging and stocks are on a long slide.

Now comes something even scarier for investors: September, traditionally the market's worst month of the year.

"If history is any guide . . . we may be in for another rough ride," said Sam Stovall, chief investment strategist at Standard & Poor's Corp.

Mutual fund managers tend to clean house after Labor Day, taking profits on winning stocks and weeding out portfolios before putting out the rosiest possible end-of-quarter reports.

Also, workers coming back from summer breaks are inclined to sell stocks as they get their financial affairs in order. And any festering issues with the economy or stocks during the summer, when trading volume is light, tend to get put off until fall.

The result: September is usually a dog of a month for the market. It typically starts with solid market increases, then tails off, said Jeffrey Hirsch, editor-in-chief of the Stock Trader's Almanac.

"There's just a general selling bias in the month of September," he said.

Four times in the past decade alone, the S&P 500 shed at least 5 percent in September. The average September decline since 1950 is 0.6 percent, according to the Stock Trader's Almanac. February is the next worst, with an average 0.2 percent loss, while December and November are the best months, each averaging 1.6 percent gains.

Of course, investors haven't forgotten that the financial world collapsed in September just two years ago. And the Sept. 11 attacks, which delivered a devastating blow to the stock market, remain a painful memory.

This year, there's a lot to frown about. The S&P 500 index is down 14 percent from its high in April, and it was down 5 percent in August.

Stocks have fallen because the economic recovery is faltering. The economy has slowed to anemic growth, home sales the last three months are the worst on record, consumer spending is lackluster and unemployment is stuck near 10 percent.

The slew of weak economic data lately sapped the market of what midsummer momentum it had - the S&P rose 7 percent in July - and further shook the confidence of already wary investors.

"I don't think it would take a whole lot to get investors to start selling and consumers to start pulling back again," said Mark Zandi at Moody's Economy.com in West Chester, Pa. "The collective psyche is on edge."

Also hanging over the market is an air of heightened uncertainty because the November elections will determine which party controls Congress for the next two years. The S&P 500 has declined an average 1.7 percent in the September before midterm elections since 1930.