Why do people say that September is the worst month for investing?

By Chris Gallant AAA
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 are the differences between weak, strong and semi-strong versions of the Efficient ...

    Discover how the efficient market theory is broken down into three versions, the hallmarks of each and the anomalies that ...
  2. Has the Efficient Market Hypothesis been proven correct or incorrect?

    Explore the efficient market hypothesis and understand the extent to which this theory and its conclusions are correct or ...
  3. How does the "Buffett Premium" increase Berkshire Hathaway's stock price?

    Explore the theory that Berkshire Hathaway stock carries a Warren "Buffet Premium" that would disappear upon his death and ...
  4. How do technical analysts predict bull markets?

    Dive into the methods and assumptions of technical analysis, and see how analysts go about trying to predict a bull market ...
RELATED TERMS
  1. Outcome Bias

    A decision based on the outcome of previous events without regard ...
  2. Hindsight Bias

    A psychological phenomenon in which past events seem to be more ...
  3. Centipede Game

    An extensive-form game in game theory in which two players alternately ...
  4. Cournot Competition

    An economic model that describes an industry structure in which ...
  5. Traveler's Dilemma

    A non-zero-sum game played by two participants in which both ...
  6. Matching Pennies

    A basic game theory example that demonstrates how rational decision-makers ...

You May Also Like

Related Articles
  1. Chart Advisor

    Why Now is the Time for Food and Beverage ...

  2. Chart Advisor

    4 Big Stock Gainers: Hold or Sell?

  3. Charts & Patterns

    Why These Could Be 2015's 10-Best Pharma ...

  4. Charts & Patterns

    Are These the 10 Best Internet Stocks ...

  5. Stock Analysis

    Internet Stocks: Still More Room to ...

Trading Center