Why September, on average, is the worst month for the stock market (2024)

FAQs

Why September, on average, is the worst month for the stock market? ›

Many mutual fund companies end their fiscal year in September, and similar to how investors harvest investment losses in November and December, mutual fund companies purge their portfolios the same way in September.

Lily says over the summer, maybe a lot of traders aren't paying that much attention to the stock market, especially not the bad news. But when everybody gets back to work in September, all that lingering bad news from the summer really starts to register. That is what causes stocks to go down.

According to Reuters, since 1945, April and December are tied as the best-performing months of the year for stocks, with an average return of 1.6%. (September is notoriously the worst, with an average loss of -0.6%.)

October Crashes

September, not October, has more historical down markets. However, October also has had its fair share of record stock market crashes. Some of the events over the decades that have given October the reputation for stock losses include: The Panic of 1907.

The September Effect is a supposed market anomaly whereby stock market returns are relatively weak during the month of September. This is considered an anomaly since it violates the assumption of market efficiency.

The month has fewer positive returns than any other, and more negatives. It is the only month of the year in which there have been fewer rising months than falling ones since 1950. The average return over the 73 years is also the worst of any month at -0.8%.

The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.

It is not a hard and fast rule, but rather a guideline that has been observed by many traders over the years. The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day.

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

Timing the stock market is difficult, but understanding when to trade stocks can help your portfolio. The best time of day to buy stocks is usually in the morning, shortly after the market opens. Mondays and Fridays tend to be good days to trade stocks, while the middle of the week is less volatile.

What is the September seasonality of the stock market? ›

The September Effect describes a phenomenon in which stock market returns are often negative during the month. Depending on the period analyzed, historical data reinforces this concept's legitimacy, but past performance isn't necessarily a predictor of future returns.

The Big Money bulls forecast that the Dow Jones Industrial Average will end 2024 at about 41,231, 9% higher than current levels. Market optimists had a mean forecast of 5461 for the S&P 500 and 17,143 for the Nasdaq Composite —up 9% and 10%, respectively, from where the indexes were trading on May 1.

In general, September is not considered a suitable month for the stock market. For more than a century, September has been considered the worst month for the stock market. However, the September effect is an anomaly in the market.

Best time of the year to buy stocks

If you're interested in buying the dip or trying to buy at the lowest price, September tends to be a down month. However, investing consistently through the year will likely better help you whether market downturns and bear markets over the long term.

Key Takeaways. The October effect refers to the psychological anticipation that financial declines and stock market crashes are more likely to occur during this month than any other month. The Bank Panic of 1907, the Stock Market Crash of 1929, and Black Monday 1987 all happened during the month of October.