Post by Victor VVV on Sept 3, 2019 22:46:52 GMT -5
Why People Say September Is the Worst Month for Investing
BY CHRIS GALLANT Updated Jul 12, 2019
Often in the financial media, you will hear people make reference to specific
times of the week, month or year that typically provide bullish or
bearish conditions.
One of the historical realities of the stock market is that it typically has
performed poorest during the month of September. The "Stock Trader's Almanac"
reports that, on average, September is the month when the stock market's three
leading indexes usually perform the poorest. Some have dubbed this annual
drop-off as the "September Effect."
Understanding the September Effect
Since 1950, the month of September has seen an average decline in the Dow Jones
Industrial Average (DJIA) of 0.8%, while the S&P 500 has averaged a 0.5% decline
during September. Since the Nasdaq was first established in 1971, its composite
index has fallen an average of 0.5% during September trading. This is, of course,
only an average exhibited over many years, and September is certainly not the
worst month of stock-market trading every year.
The September Effect is a market anomaly and not related to any particular market
event or news. In recent years, the effect has dissipated. Over the past 25 years,
for the S&P 500, the average monthly return for September is approximately -0.4%,
while the median monthly return is positive. In addition, frequent large declines
have not occurred in September as often as they did before 1990. One explanation
is that as investors have reacted by “pre-positioning”—that is, selling stock
in August.
KEY TAKEAWAYS
* Since 1950, the Dow Jones Industrial Average (DJIA) has averaged a decline of 0.8%,
while the S&P 500 has averaged a 0.5% decline during the month of September.
* The September Effect is a market anomaly, unrelated to any particular market event or news.
* The September Effect is a worldwide phenomenon; it doesn't only affect US markets.
* Since 1950, the Dow Jones Industrial Average (DJIA) has averaged a decline of 0.8%,
while the S&P 500 has averaged a 0.5% decline during the month of September.
* The September Effect is a market anomaly, unrelated to any particular market event or news.
* The September Effect is a worldwide phenomenon; it doesn't only affect US markets.
Explanations for the September Effect
The September effect is not limited to US stocks but is associated with markets worldwide.
Some analysts consider that the negative effect on markets is attributable to seasonal
behavioral bias as investors change their portfolios at the end of summer to cash in.
Another reason could be that most mutual funds cash in their holdings to harvest tax losses.
Another particular theory points to the fact the summer months usually have lightly traded
volumes, as a good number of investors usually take vacation time and refrain from actively
trading their portfolios during this downtime.
Once the fall season begins and these vacationing investors return to work, they exit positions
they had been planning on selling. When this occurs, the market experiences increased selling
pressure and, thus, an overall decline.
Additionally, many mutual funds experience their fiscal year end in September. Mutual fund
Additionally, many mutual funds experience their fiscal year end in September. Mutual fund
managers, on average, typically sell losing positions before year end, and this trend is another
possible explanation for the market's poor performance during September.
To learn more about interesting market phenomena such as this, consider reading our Greatest
To learn more about interesting market phenomena such as this, consider reading our Greatest
Market Crashes Tutorial and "An Introduction to Behavioral Finance."
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