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.

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