The September Effect and Stock Market Returns

Stock market performance often seems unpredictable. One month stocks are up, the next month they’re down. Volatility seems to be the name of the game, right? Maybe, but there are some historical trends of stock performance that are actually quite noticeable if you crunch the data. One noteworthy trend is the “September Effect” – poor stock market performance in the month of September.

We first discussed the topic of this September swoon in prices in a prior post on stock market returns by month. Check out the data and the graphs in that post, and you can see that stock performance (S&P 500) in the month of September is not good over the long term.

Interesting findings from that post, specifically related to September, are:

  • In the last 10 years, September is ranked 9th out of 12 months in stock performance
  • During that decade, September is one of only 4 months with a negative monthly return (-0.97%)
  • In the last 40 years, September is ranked 12th out of 12 months – dead last – in stock performance
  • During those 4 decades, September was one of only 2 months with a negative monthly return (-0.77%)

Overall, it’s clear: September has offered low stock market returns over the short-term and long-term.

So, why is that the case? It’s an interesting question, as there have been some big drops in the market in September. Most recently, 2008 saw market drop 9.8% in September.  Most of remember that market decline of just a few years ago.  However, did you know that in 2002, the market dropped by even more in September? It dropped by 11%, actually.

Alright, so September hasn’t been the best month for stocks, over the long run. Maybe it’s best to enjoy the seasons changing, fall colors, the football season starting, or whatever suits your fancy. Just forget about making money in stocks in this particular month, right?

Not necessarily. September isn’t always a disaster. When I crunched the data some more, and looked at stock performance by month within the last decade, we can see that September has ranked across the board in returns, compared to other months in each year. Here is where the month ranked (out of 12) each year:

2010 – 1st

2009 – 6th

2008 – 11th

2007 – 2nd

2006 – 3rd

2005 – 5th

2004 – 9th

2003 – 10th

2002 – 12th

2001 – 11th

Clearly, it’s been across the board in that recent decade. There’s actually a good deal of variability in stock performance in September, on a year to year basis.  It’s no slam dunk that there will be September Effect each and every year. This is where overall data can be a bit misleading.

That being said, there have still been enough bad Septembers that the overall stock performance for that month over the long term, compared to other months, has been shaky.  It doesn’t mean that it will tank this year or next. Consider this for entertainment purposes if you will, but I’m still going to keep this in mind.  40 years is a long enough data set for me for me to at least take notice :)

My Questions for You:

Have you heard of the September Effect?

Do you believe in seasonal or historical stock trends, or do you believe that the market moves indpendent of such factors?

Would such information cause you think any differently about any pending stock moves during this time of year?

 

Comments

  1. says

    Last September we had one of the best stock market returns! Knowing patterns is good to know, but there always will be exceptions.

    Let’s hope the markets will buck the trend and give us yet another surprising September!

    • Squirrelers says

      You’re absolutely right. In researching for this post that jumped out at me, and got me to go down the path of emphasizing variability in September returns as I wrote this. Last September was good. It’s interesting how over the 40-year long run, despite these good months (and there are some), September has provided a negative return. So, some Septembers in the past have good, some bad, on balance they’re below average.

  2. says

    I’ve heard about this effect. However, I think that for this year because the market tanked in August, it will rally in September. I’m guessing there is some seasonal effect going on overall; in the summer (which includes June through September in the northern hemisphere) people aren’t paying as much attention and investing as readily – maybe they’re too busy vacationing. And businesses may also be in a summer slump. Then fall begins and those investors get serious and businesses pick back up. But who knows, maybe it is just a coincidence.

    • Squirrelers says

      Little House – I’ve wondered about the seasonality aspect. Those theories are logical and I’ve thought the same things as you mention. Even if that isn’t the case, the facts are that September has been a subpar month in totality over this extended time period!

  3. says

    I have heard of the September effect and the seasonality of the market, but I am not a market timer. I would be very bad at it anyway., so I don’t do it.

    • Squirrelers says

      krantcents – well, based on the variability in returns in September, you might not be alone in being bad at it! By the way, I tend to be a buy and hold person too.

  4. says

    I have to echo what KrantCents said. We don’t market time & we look at a longer time frame. Since we are aware of Sept.’s reputation I guess we can take it a little better if things go downhill then.

    • Squirrelers says

      Maggie – that seems like a healthy mindset toward September and stocks. I too tend to be a long-term investor like you for the most part If you did want to buy in (or sell), it’s interesting how September performs over the long run.

  5. says

    I have heard of the September effect, but now I am starting to believe more in the ‘Kris Effect’. Meaning, if I act on a reliable pattern, the end result will be an outlier that nobody has seen in years and years. This is why I dollar cost average, I am not a great market timer.

  6. says

    Yes, I have heard of the September effect although October tends to get the bad press because of 1929 and 1987. However, it really won’t change what I am doing other than maybe I might get a better entry point or two.

    • Squirrelers says

      Cashflow Mantra – interestingly, October actually looks better than September over the last 40 years. That’s a good point about 1929, the classic ‘crash’ occurred that October.

  7. says

    I am going to keep investing in September… hopefully it won’t hurt me too badly. All I know is that I first started investing in Fall 2007 (the HEIGHT of the market)… so now every share I’m buying I’m getting at a comparative discount. Gotta make myself feel a little better, right? ;)

  8. says

    I have heard of the September effect, but I am horrible at timing the market. So I am just going to keep investing and hope that it won’t come back and bite me. I am reading up on the stock market just to learn though, may be one day I will understand it better and know how to use it as well.

  9. says

    I’d vaguely heard of this, and most definitely learned more about it just by reading your post. Still, I’m not much of a timer, so this will get have the same effect on my as “sell in May, go away”

  10. says

    I have heard of the September effect but I don’t let it influence my investing decisions. Dollar cost averaging, diversification, and quarterly rebalancing are the strategies I use to minimize the effect of volatility. Having said that, when you are faced with a cyclical bear market you need to look at other ways to reduce exposure to underperforming assets.

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