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?

    Because of the way people throw around the words "Dow" and "Nasdaq," both terms have become synonymous with "the market," ... Read Answer >>
  2. What is a good annual return for a mutual fund?

    Explore the question of what constitutes a good annual return from investing in mutual funds and the factors that affect ... 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. Can you buy shares in the Dow Jones Industrial Average (DJIA)?

    Invest in the Dow Jones Industrial Average index through index funds or ETFs. Read Answer >>
  5. How many components are listed on the Dow Jones Industrial Average?

    Learn how many components comprise the Dow Jones Industrial Average and understand the stock index's origins and how it is ... Read Answer >>
  6. What are the most common market indicators to follow the U.S stock market and economy?

    Understand some of the key indicators analysts use to follow the U.S. stock markets and to assess the overall condition of ... Read Answer >>
Related Articles
  1. ETFs & Mutual Funds

    FLPSX: Fidelity's Fund for Small & Mid Sized Companies

    Discover the seasonal performance trends for the Fidelity Low-Priced Stock Fund, and learn which months have been the best and worst times to invest.
  2. Investing

    The Most Important Stock To Watch This Month Is...

    All major U.S. indices closed higher for the fourth consecutive week, this time led by the small-cap Russell 2000, which was up 1.2%. Year to date, however, the Russell has by far been the weakest, ...
  3. ETFs & Mutual Funds

    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.
  4. Trading

    Capitalizing On Seasonal Effects

    We show you how to take advantage of periodic trends in the equity markets.
  5. ETFs & Mutual Funds

    AWSHX: American Funds Washington Mutual Investors Performance Case Study

    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. ETFs & Mutual Funds

    PRHSX: T Rowe Price Health Sciences Fund Performance Case Study

    Learn more about the T. Rowe Price Health Sciences Fund, including the historical performance and financial trends by quarter over the past five years.
  7. ETFs & Mutual Funds

    Market Bottom: Are We There Yet?

    No one rings a bell when the bear market's over, but that doesn't mean there's no way to predict a bottom.
  8. ETFs & Mutual Funds

    OAKBX: Oakmark Equity & Income Fund Performance Case Study

    Discover the performance trends of the Oakmark Equity & Income Fund, and learn which times of year the fund has performed better or worse.
  9. Trading

    Understanding Investor Behavior

    Discover how some human tendencies can play out in the market, posing the question: are we really rational?
  10. ETFs & Mutual Funds

    How Stock Market Indexes Changed Investing

    Find out how the first market averages were calculated and what they mean for investors today.
RELATED TERMS
  1. Stock Market Crash Of 1987

    A rapid and severe downturn in stock prices that occurred in ...
  2. Dow Jones 65 Composite Average

    A composite index that measures changes within the 65 companies ...
  3. Top Holdings

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

    The completion of a one-year, or 12-month, accounting period. ...
  5. Market Perform

    An investment rating used by analysts when the expectation for ...
  6. October Effect

    The theory that stocks tend to decline during the month of October. ...
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center