Tim B. from Jacksonville, FL asks: Hi Mitch, I’ve noted in many articles and research that September is generally a terrible month for stocks. Looks like the first week of the month has been proving that right. Do you see this weakness continuing?
Thanks for your question, Tim. What you’re referring to is the “September Effect,” which says that September has been the worst-performing month for the U.S. going back almost 100 years.1
There’s a statistic that supports this view – from 1928 to 2022, the S&P 500 has averaged a decline during the September month, which sets it apart from the rest of the calendar year. Not every September is negative, of course, but it’s easy to see why the “September Effect” has gained popularity among investor circles and in the financial media.2
There are even a few theories for why September returns, on average, have been materially weaker than other months. Some say that traders are returning from summer vacation and want to take profits and harvest losses, to set up for the final quarter of the year. Institutional investors like mutual funds take similar actions. Others claim that investors are selling stocks to pay for return-to-school expenses. And yet another theory posits that because the “September Effect” is such a widely acknowledged anomaly, investor psychology makes its weakness a self-fulfilling prophecy.
Don’t buy into any of that.
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For one, there have been plenty of years when September delivered nicely positive returns. It’s also true that while the average return for September is negative, the median return for the month is positive. That’s important.
But perhaps the biggest takeaway for readers here, I think, is that when you remove some of the big, historical market crashes for September, the month turns back to being positive on average. In fact, even just removing 2001 (September 11 attacks) and 2008 (Lehman Brothers failed on September 15, 2008) would do the trick.
It follows that I do not have a good answer to your question about whether I see weakness continuing in September. Looking out two or three weeks to forecast markets is just a guessing game, and I don’t make decisions based on such short timelines. What I will say, however, is that investors should not make decisions based on calendar quirks or other mantras like the “September Effect” or “Sell in May and Go Away. The stock market doesn’t adhere to a calendar.
In the meantime, discovering ways to protect your long-term investments from market changes could be a good solution.
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1 Yahoo Finance. August 31, 2023. https://finance.yahoo.com/news/september-is-historically-an-awful-month-for-stocks--but-maybe-not-this-time-morning-brief-100007880.html
2 The Guardian. September 1, 2023. https://www.theguardian.com/business/2023/sep/01/september-five-cautionary-tales-economic-history-south-sea-bubble-trussonomics
3 ZIM may amend or rescind the free guide offer, Using Market Volatility to Your Advantage, for any reason and at ZIM’s discretion.
4 ZIM may amend or rescind the free guide offer, Using Market Volatility to Your Advantage, for any reason and at ZIM’s discretion.
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