Why stocks typically decline in September and why it may not matter for some investors
Stock investors have historically faced challenges in September. According to data from Morningstar Direct since 1926, U.S. large-cap Stocks have experienced an average loss of 0.9% during this month. In fact, September is the only month with an average loss over this time period, with all other months yielding profits. Comparatively, February has seen a positive 0.4% return on average, while July reigns supreme with nearly a 2% average return.
In more recent times, the S&P 500 stock index has shown an average loss of 1.7% in September since 2000, the worst performing month by over a percentage point. Despite this historical trend, experts caution against attempting to time the market as it’s virtually impossible to predict when good or bad days will occur. Financial experts emphasize that staying invested in Stocks for the long term is crucial.
Market maxims like “sell in May and go away” are not always reliable indicators. Fidelity Investments noted that more often than not, Stocks tend to record gains throughout the year on average, making such strategies questionable. Since 2000, the S&P 500 has seen gains of 1.1% from May to October on average, while the index gained 4.8% from November to April.
Historically, September weakness can be traced back to banking practices and agricultural influences in the 19th century. New York City’s dominance as a banking hub, combined with money scarcity post-harvest season led to a cyclical selling of Stocks in September. However, with the establishment of the Federal Reserve in the early 20th century, this trend was disrupted.
Modern-day September losses are largely attributed to investor psychology. Narratives can feed on themselves, influencing market behavior. Factors such as mutual funds engaging in tax loss harvesting towards the end of the fiscal year may contribute to stock sales in September. Uncertainty surrounding events like the U.S. presidential election and Federal Reserve policy decisions can also exacerbate market weakness. Ultimately, the continued pattern of September underperformance remains largely psychological in nature.
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Emily Jensen, graduated from the London School of Economics and Political Science (LSE) in the UK in 2015 with a degree in Economics. She specializes in financial markets and international trade. After graduating, she worked as an analyst at an investment bank in London, where she developed expertise in global economic trends. She later transitioned into consulting, focusing on fintech ventures and providing insights into global economic developments. Emily is passionate about the intersection of finance and technology and aims to drive innovation in the financial sector.