Going all the way back to 1950, September has traditionally seen poor performance for the top three market indices.

Each September the Dow Jones has shown an average decline of 0.8%, the S&P 500 a 0.5%, and the Nasdaq (established in 1091) a 0.5% decline.

This is not to say that September is the worst month of performance in any given year – but instead pointing out a rare market anomaly that happens not just in the U.S. but across the globe. Our friends at Investopedia break it down.


What’s causing the “September Effect”?

There are many theories behind the causes. Some believe:

The decline is the result of seasonal behavior changes. Many investors change their portfolios as summer ends to “cash in”.

It could be the result of mutual funds selling investments at a loss to reduce tax liabilities.

Many investors vacation during the summer months and overall trading volume is low. When investors return from vacations, they are then selling off positions they’d planned to sell. The influx of trades as summer winds down would lead to increased selling pressure and an overall decline.

The fiscal year for mutual funds ends in September. In anticipation, many fund managers sell low performing positions.

Any one of these theories or even parts of all them could be contributing to the “September Effect”. 

In recent years the effect has largely dissipated, but thanks to its 60+ year influence, some still grow wary as fall approaches.

Will it influence your investment decisions?