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. 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 >>
Related Articles
  1. Investing

    The 'September Effect' Is Real: Bespoke Investment Group

    With geopolitical tensions reaching a tipping point, some see another bleak month ahead.
  2. Financial Advisor

    Downtrending Stocks to Short or Sell

    These stocks are trending lower and currently near a short sale areas, based on breaks lower and falling stock indexes.
  3. Insights

    The Cruelest Month: September Could Hammer Stocks

    Investors relieved that the stock market held steady in August may have a rude awakening in September.
  4. Investing

    Fidelity's Fund for Small & Mid Sized Companies (FLPSX)

    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.
  5. Investing

    Surging Bull: Why 4Q Will Be The Year's Best For Stocks

    U.S. stocks could surge in the fourth quarter, historically the strongest of the year
  6. 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.
  7. Insights

    What is the Fiscal Year-End?

    It’s an important consideration for determining taxes, expenses and other financial matters.
  8. 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.
  9. Investing

    The Most Volatile Time for Stocks? Sept. and Oct.

    September and October have historically been the two most volatile months for stocks, which some advisors see as an opportunity.
  10. 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
RELATED TERMS
  1. September Effect

    The September Effect refers to the historical weakness in stock ...
  2. Fiscal Year-End

    The completion of a one-year, or 12-month, accounting period. ...
  3. Mutual Fund Liquidity Ratio

    A ratio published monthly by the Investment Company Institute ...
  4. Top Holdings

    The highest volume of publicly traded assets held by an individual, ...
  5. Dow Theory

    A theory which says the market is in an upward trend if one of ...
  6. Dow Jones 65 Composite Average

    A composite index that measures changes within the 65 companies ...
Hot Definitions
  1. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  2. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  3. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  4. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
  5. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  6. Solvency

    The ability of a company to meet its long-term financial obligations. Solvency is essential to staying in business, but a ...
Trading Center