A:

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.

Since 1950, the month of September has seen an average decline in the Dow Jones Industrial Average (DJIA) of 1.1%, while the S&P 500 has averaged a 0.7% decline during September. Since the Nasdaq was first established in in 1971, its composite index has fallen an average of 1% 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.

There are several theories which attempt to explain this phenomenon. One particular theory points to the fact the summer months usually offer light trading volumes on the stock market, as a good deal of investors typically take vacation time and refrain from selling stocks from their portfolio. Once fall begins these investors typically return to work and exit positions they had been planning on selling. When this occurs, the market experiences increased selling pressure, and thus an overall decline.

As well, many mutual funds experience their fiscal yearend in September. Mutual fund managers, on average, typically sell losing positions before yearend, 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 Market Crashes Tutorial or Taking A Chance On Behavioral Finance.

RELATED FAQS
  1. What is the difference between the Dow and the Nasdaq?

    The Dow refers to the Dow Jones Industrial Average (DJIA), an important index that indicates how well the overall stock market ... Read Answer >>
  2. Who or what is Dow Jones?

    Dow Jones is one of the largest business and financial news companies in the world. It owns owns the Dow Jones Industrial ... Read Answer >>
  3. How is the Dow Jones Industrial Average used in the Dow theory?

    Discover how the Dow Jones Industrial Average is used in the Dow Theory, which is used by traders to figure out the trend ... Read Answer >>
  4. How are blue-chip stocks similar to mutual funds and exchange-traded funds (ETFs)?

    Understand the primary differences between making investments in blue-chip stocks, mutual funds and exchange-traded funds ... Read Answer >>
  5. Is it possible to invest in an index?

    First, let's review the definition of an index. An index is essentially an imaginary portfolio of securities representing ... Read Answer >>
Related Articles
  1. Trading

    These Are Not Good ETFs to Own in September

    These commodity ETFs tend to perform poorly in September, and this year may be no different.
  2. Investing

    VIMAX: Vanguard Mid-Cap Index Fund Performance Case Study

    Discover the performance trends of the Vanguard Mid-Cap Index Fund, and learn which times of the year the fund has performed its best and worst.
  3. Investing

    BND: Vanguard Total Bond Market ETF Performance Case Study

    Learn about some of the performance trends of the Vanguard Total Bond Market ETF, and discover which times of year the fund has performed at its best and worst.
  4. Investing

    Index Investing

    Get to know the most important market indices and the pros and cons of investing in them.
  5. Investing

    American Funds Washington Mutual Investors Performance Case Study (AWSHX)

    Discover seasonal performance trends for the American Funds Washington Mutual Investors Fund Class A Shares, and learn when are the best times are to invest.
  6. Trading

    Best Time(s) of Day, Week & Month to Trade Stocks

    Is 9:00am or Noon better to buy stock? Best day? What about best month? Here's how time affects trading decisions based on daily, weekly and monthly trends
  7. Investing

    T Rowe Price Health Sciences Fund Performance Case Study (PRHSX)

    Learn more about the T. Rowe Price Health Sciences Fund, including the historical performance and financial trends by quarter over the past five years.
  8. Insights

    Oil Prices Lead Bounce In Retail Sales

    Rising oil prices helped U.S. retail sales increase 0.6% in September. The probability for an interest rate hike in September continues to increase.
  9. Investing

    VTIAX: Vanguard Total Int'l Stock Index Performance Case Study

    Discover the performance trends of the Vanguard Total International Stock Index Fund, and learn which times of the year this fund has performed its best and worst.
RELATED TERMS
  1. September Effect

    The September Effect refers to the historical weakness in stock ...
  2. Top Holdings

    The highest volume of publicly traded assets held by an individual, ...
  3. Fiscal Year-End

    The completion of a one-year, or 12-month, accounting period. ...
  4. Stock Market Crash Of 1987

    A rapid and severe downturn in stock prices that occurred in ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. ...
  6. Index

    A statistical measure of change in an economy or a securities ...
Hot Definitions
  1. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  2. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  3. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities ...
  5. Wash-Sale Rule

    An Internal Revenue Service (IRS) rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security ...
  6. Porter Diamond

    A model that attempts to explain the competitive advantage some nations or groups have due to certain factors available to ...
Trading Center