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The September Effect

bear market bears take the elevator septemeber effect stock patterns Sep 06, 2022

Repeatedly in the financial media, you'll hear individuals make guidance to particular times of the week, month, or a period of 365 days that typically supply bullish or bearish conditions.


Is September the poorest month for the stock market?


From 1928 through 2021, the S&P 500 index has averaged a 1% decline during the month of September. This is an average exhibited over many years, and September is certainly not the worst month of stock-market trading every year.

Here below are some numbers to illustrate the consistency of this seasonal pattern.




Explanations for the September Effect


Several analysts consider that the negative effect on markets is done by seasonal behavioral bias as investors alter their portfolios at the close of summer to cash in. Another reason might be that most mutual funds cash in their holdings to harvest tax losses. A one more specific theory points to the fact the summer months normally have lightly traded volumes, as a nice number of investors generally hold vacation time and take off from actively trading their portfolios whilst this downtime. Once the fall season kicks off and these vacationing investors revert to work, they exit positions they had been planning on selling. When this occurs, the market faces escalated selling pressure and, thus, a decline takes place. Additionally, numerous mutual funds end their fiscal year-end in September. Mutual fund managers, on average, typically trade losing positions before year-end, and this trend is an extra conceivable explanation for the market's destitute performance whilst September. As with many other calendar effects, the September effect is considered a historical quirk in the data rather than an effect with any causal relationship.




The effect is not overwhelming and, more importantly, is not predictive in any useful sense. If an individual had bet against September over the last 100 years, that individual would have made an overall profit. If the investor had made that bet only in 2014, for instance, that investor would have lost money, so keep in mind that just because September comes around the corner, it is not a valid reason to just blindly sell everything.

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