Is September Really a Nightmare Month for Wall Street?

Financial markets began Tuesday with a sense of anxiety and tension, as stocks declined at the start of what is historically considered the worst month on Wall Street.
This phenomenon is known as the “September Effect,” a term that refers to the weak performance of the stock market during this specific month. According to Ryan Detrick, Chief Market Strategist at Carson Group, September has been the worst-performing month over the past 10, 20 years, and even since 1950. According to Fisher Investments, September is the only month to record an average negative return since 1925 (-0.78%).

Content:

What Are the Reasons Behind the September Effect
A Few Bad Months Taint September’s Reputation
The September Effect in Election Years
What Awaits the Markets This Month

What Are the Reasons Behind the September Effect

There are several theories to explain this historical pattern.
The first theory suggests that traders returning from summer vacations reorganize their investment portfolios in September,
leading to increased selling volume, which puts pressure on stock prices.
Another theory points to the rise in bond offerings in September after the holidays,
attracting funds that would have otherwise been directed towards stocks.
Another theory blames mutual funds, whose fiscal year ends on October 31, for closing their losing positions for tax purposes.

However, there is no definitive explanation behind this phenomenon.
Although trading activity tends to decrease during holiday periods,
modern technology such as algorithmic trading and smartphones has reduced the impact of holidays on the markets.

A Few Bad Months Taint September’s Reputation

September’s bad reputation may be the result of a few exceptionally poor years.
In September 1931, during the height of the Great Depression, the S&P 500 lost about 29.6% of its value, marking its worst month ever. In September 2008, the index dropped by around 9% due to the collapse of Lehman Brothers.

Despite this, there are still reasons to stay in the market during September. Over the past century, stocks have risen slightly more than they have fallen in this month (51% up versus 49% down), meaning that avoiding the market during September doesn’t necessarily guarantee success. In fact, the average return for September over 98 years was exactly 0%, according to Fisher Investments.

The September Effect in Election Years

This year, concerns about September are heightened due to the upcoming presidential election.
Uncertainty surrounding the election results could weigh on stock performance over the next two months.
However, presidential elections haven’t made September a worse month for stocks.
In fact, stocks have risen in nearly two-thirds of September months preceding presidential elections (62.5% of cases since 1925), with an average return of 0.3%.

What Awaits the Markets This Month

Despite the well-known September effect, markets respond daily to current economic conditions and investor expectations.
This month, factors such as labor market movements, inflation,
and upcoming Federal Reserve actions may play a more influential role than historical patterns alone.

Is September Really a Nightmare Month for Wall Street?

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