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“There is no law. It’s just the best lawyers always win.” – Ron Baron

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Trade disputes and the potential for moving towards more closed borders on commerce has weighed on futures this morning.  Futures are down across the board, but the Nasdaq is taking it hardest as additional restrictions on Apple iPhone usage for Chinese government employees could be coming.  In the other direction, both the US and Europe are considering adding additional tariffs on Chinese steel imports.

On the economic side of things, Non-Farm Productivity and Unit Labor Costs were both higher than expected, and jobless claims came in lower than expected on both an initial and continuing basis.  That kind of data won’t do much to weigh down interest rates, but it will certainly pressure stock prices.

Given its reputation, September has started just how you would expect it to.  While the S&P 500 barely avoided finishing the first three trading days of the month down 1%, the Nasdaq finished down 1.16% month to date yesterday.  The chart below shows the index’s performance during the first three trading days of the month for all years since 1971, and the red bars indicate years that the index was down 1%+.  As shown, 1%+ declines in the first three trading days haven’t been particularly uncommon, especially in the last six years.

So, does a bad start to September for the Nasdaq mean anything with respect to the rest of the month? The table below lists each year that the Nasdaq was down 1%+ in the first three trading days of the month.  For each year, we also show the index’s YTD performance heading into the month along with its performance for the remainder of the month.  Of the sixteen prior years shown, the Nasdaq’s average change for the rest of the month was a decline of 2.85% (median: -3.70%) with gains less than a third of the time.  That’s considerably worse than the 0.85% average decline for all years since 1971.

While it appears that months which start out poorly for the Nasdaq lead to further declines over the course of the rest of September, there is a caveat.  If you look at the years when the Nasdaq was up over 10% heading into September but then traded down over 1% in the first three trading days, performance wasn’t nearly as bad. In fact, the S&P 500’s average rest of month performance was a gain of 0.61% (median: 1.56%) with positive returns four out of seven times.

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