The September Effect: Market Myths

Quinlyn Manfull
September 9, 2022

When the weather heats up in spring, the catchphrase for investors has been “sell in May and go away,” but that’s not the only calendar effect investors pay attention to.

One of the historical calendar effects of the stock market is the September Effect. The question is, is it true or just market myth?

What is the September Effect?

The September effect refers to historically weak stock market returns in the month of September. Historical evidence for this effect depends on the period analyzed, but much of the theory is anecdotal.

As with many other calendar effects, the September effect is considered a historical quirk in the data rather than an effect with any provable causal relationship.

Is the September Effect Real?

Not really. Looking at the Dow Jones Industrial Average (DJIA), September is the only calendar month with a negative return over the last 10 years. From 1928 to 2021, the S&P 500 index averaged a 1% decline during the month of September, and the Nasdaq Composite has fallen an average of 0.6% in September since first established in 1971. This is the statistical market data for the September effect theory.

However, the degree of negative returns is not great, meaning the effect is not overwhelming and is also not predictive, as many Septembers over the past 100 years have seen positive returns. In fact, September is not at all the worst month of stock market trading every year.

The September effect is a market anomaly and is not related to any specific market news or events. In recent years, the prevalence of the September effect has dwindled. Over the last 25 years, the S&P 500 returned an average of -0.4% in September, while the median monthly return is now positive.

Explanations for the September Effect

There is no foolproof reason why this phenomenon has been identified, but many economists have a variety of theories behind it.

Seasonal Rebalancing

It is generally believed that investors return from summer vacation in September ready to lock in gains as well as tax losses before the end of the year. If a large number of investors are selling off their losses within the same month, the market experiences increased selling pressure and therefore an overall decline.

There is also a belief that individual investors liquidate stocks going into September in order to offset back-to-school costs for their children.

Another reason is many mutual funds end their fiscal year-end in September. Mutual fund managers, on average, tend to sell losing positions before year-end, which for them is the end of September.

Election Season

In the US, September tends to begin the media frenzy for federal elections, which often have ripple effects on the stock market. Many investors reposition their portfolios for potential power transfers, leadership changes, and Congressional party shakeups.

While the September effect isn’t limited to just US markets, US elections also tend to have a significant ripple throughout global economies.

Market Psychology

There are some economists who claim the September effect is nothing more than a self-fulfilling prophecy. Why do stocks tend to fall in September? Because most investors think they will, they sell off in September.

Investors believing that other investors believe in an anomaly is often all the market needs to confirm the anomaly.

The October Effect

The October effect is a theory that severe adverse events in the stock market are likely to take place in October. There are investors as well as financial services professionals who create trading strategies based on this theory. Others feel it is more of a superstition due to the lack of historical market data to back up the theory.

Many past catastrophic events in the financial markets occurred during October, including the 1907 panic, Black Monday, Black Tuesday, and Black Thursday of 1929, and the sudden crash of 1987.

Of course, these coincidences are not enough to convince all investors of the October effect. Many adverse events have occurred across all calendar months.

Bottom Line

Stock market anomalies like “Sell in May” or the September effect are often based as much on personal narratives as they are on statistical data. Stories about Black Monday in 1987 or the market crash of 1929 stick with investors far more than stats about average returns over a century-long period.

Because these anomalies are not predictive, it is nearly impossible to trade around them. They do not happen every time, and when they do it tends to be difficult to understand why. Buying and selling stocks should be based on an investor’s personal finance goals, risk tolerance, and investment horizon, not on sentiments or statistical anomalies.

This material is provided for informational and educational purposes only.  It is not intended to be investment advice and should not be relied on to form the basis of an investment decision


Quinlyn Manfull
Quinlyn Manfull is a a New York based finance writer covering alternative investments, crypto, and NFTs. Previously she worked as an Investment Analyst for HSBC Private Bank covering capital markets. Her byline has been featured in the Anchorage Daily News, and her university newspaper, The Willamette Collegian. Quinlyn earned a B.A. in Economics from Willamette University and holds her FINRA Series 7 License.