Traders on the floor of the New York Stock Exchange on September 9, 2024.
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Historically, September has been tough for stock investors.
Since 1926, U.S. large-cap stocks have fallen an average of 0.9% in September, according to Morningstar Direct.
According to Morningstar, September is the only month in nearly a century when investors, on average, lose money. They made profits in the other months.
For example, the average return in February was 0.4%. While this performance was the second-lowest in 12 months, it was still 1.3 percentage points below September. July had the highest average return at nearly 2%.
Looking at the most recent period alone, the same holds true for monthly weakness.
For example, S&P 500 Index Indexes fell an average of 1.7% in September since 2000, their worst monthly performance by more than a percentage point, according to FactSet.
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Abby Yoder, U.S. equity strategist at J.P. Morgan Private Bank, said that historically, the last two weeks of September are typically the weakest period of the month.
“Starting next week, seasonally speaking, things are going to get more negative,” Yoder said.
Trying to time the market is a losing bet
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Yoder said investors who have held stocks for the long term should not abandon their investments.
Trying to time the market Financial experts say it’s almost always a losing bet. That’s because it’s impossible to know when good and bad days will occur.
For example, the S&P 500’s 10 best trading days over the past three decades all occurred during recessions, according to analysis released by Wells Fargo earlier this year.
Additionally, the average September return for U.S. large-cap stocks has been positive in the half-year period since 1926, according to Morningstar. In other words: they are negative only half the time.
For example, investors who sold stocks in September 2010 would have given up a 9% return that month—the best monthly return of the year, according to Morningstar.
“It’s all random,” said Edward McQuarrie, a professor emeritus at Santa Clara University who studies historical investment returns. “Stocks are very volatile.”
Don’t trust market rules
Likewise, experts say investors don’t necessarily have to accept market maxims as truth.
For example, the popular saying “sell in May and walk away” would have investors sell stocks in May and buy them back in November. Thoughts: November through April is the best six-month period for stocks to roll.
It’s all random.
Edward Macquarie
Professor Emeritus, Santa Clara University
“History shows this trading theory is flawed,” Wrote Fidelity Investments in April. “On average, stocks tend to rise throughout the year. So selling in May doesn’t usually make a lot of sense.”
Since 2000, the S&P 500 has gained an average of 1.1% from May to October, during that six-month period, according to FactSet. From November to April, the stock index rose 4.8%.
Historical reasons for September weakness
McQuarrie said there are historical reasons why stock markets often performed poorly in September before the early 1900s.
it is associated with 19th Century farming, banking and capital were scarce, he said.
At the time, New York City had become a powerful banking center, especially after the Civil War. During the year, McQuarrie said, deposits flowed to New York from other parts of the country as farmers planted crops and local banks accumulated purchasing funds that could not be fully utilized locally.
The Bank of New York would provide funds to stock speculators in order to earn a return on these deposits. In early fall, rural banks drew balances in New York to pay farmers for their crops. MacQuarrie said speculators had to sell stock as New York banks called loans, causing share prices to fall.
“The banking system is very different,” he said. “It’s systemic, almost every year, money is always tight in September.”
The cycle ends in early 2020th century and MacQuarrie said the establishment of the Federal Reserve, the U.S. central bank.
“It enters the soul”
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Experts say September’s streak of losses is even more puzzling in modern terms.
Investor psychology may be the most important factor, they say.
“I think there’s an element of these narratives that feeds on itself,” said J.P. Morgan’s Yoder. “It’s the same concept that recession narratives cause recessions. It runs deep.”
There may be other factors, she said.
For example, mutual funds often sell shares to lock in profits and losses for tax purposes—the so-called “Tax loss harvesting – usually at the end of the financial year Around October 31st. Funds typically begin providing capital gains tax estimates to investors in October.
Mutual funds appear to be “bringing forward” these tax-oriented stock sales to September more frequently, Yoder said.
I think there’s an element of these narratives that feeds on itself.
Abby Yoder
U.S. Equity Strategist, J.P. Morgan Private Bank
Yoder said investor uncertainty about the outcome of the U.S. presidential election in November and the outcome of next week’s Federal Reserve policy meeting, where officials are expected to cut interest rates for the first time, could exacerbate weakness in September.
“The market doesn’t like uncertainty,” she said.
But ultimately, “I don’t think anyone can explain why this pattern persists other than psychological reasons,” McQuarrie said.
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