Why stocks will fall in September — and most investors probably won’t care

Historically, September has not been a good month for stock investors.

Since 1926, large U.S. stocks have fallen an average of 0.9% in September, according to Morningstar Direct data.

According to Morningstar, September is the only month in nearly 100 years in which investors have lost money on average; every other month has been profitable.

For example, February recorded an average positive return of 0.4%. This performance was the second-lowest of the 12-month period, but still exceeded September’s return by 1.3 percentage points. July had the highest average return with almost 2%.

The monthly weakness holds true even when looking only at the most recent period.

for example, S&P 500 Since 2000, the stock index has fallen an average of 1.7% in September, according to FactSet, making this its worst monthly performance of a drop of more than a percentage point.

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Abby Yoder, U.S. equity strategist at JPMorgan Private Bank, said historically, the final two weeks of September are typically the weakest period of the month.

“Starting next week [tend to get] “There’s going to be a little bit more of a negative impact in terms of seasonality,” Yoder said.

Yoder said investors who are in stocks for the long term shouldn’t get out.

Financial experts say trying to time the market is almost always a losing bet because it’s impossible to know when the good and bad days will occur.

For example, a Wells Fargo analysis released earlier this year found that the S&P 500’s 10 biggest gains over the past 30 years all occurred during recessions.

What’s more, according to Morningstar, the average September return for large U.S. stocks has been negative half the time since 1926. In other words, they’ve been negative half the time.

For example, investors who sold stocks in September 2010 would have missed out on a 9% gain that month, the best month of the year, according to Morningstar.

“It’s all random,” says Edward McCurry, a professor emeritus at Santa Clara University who studies the history of investment returns. “Stocks are volatile.”

Similarly, experts say investors shouldn’t necessarily accept market maxims as self-evident.

For example, the popular adage “sell in May and walk away” would see investors sell stocks in May and buy them back in November. The idea is that November to April is the best six-month consecutive period for stocks.

“History shows this trading thesis to be flawed,” Fidelity Investments wrote in April. “Stocks often tend to rise, on average, over the course of the year, so selling in May generally doesn’t make much sense.”

Since 2000, the S&P 500 has gained an average of 1.1% from May through October. Over a six-month period, the stock index rose 4.8% from November to April, according to FactSet.

McCully said there are historical reasons why stocks often fell in September before the early 1900s.

That leads to 19^Number He blamed century farming, banking practices and a lack of money.

At the time, New York City held sway as a powerful banking center, especially after the Civil War. As farmers planted crops and their purchases accumulated in local banks, deposits flowed into New York from other parts of the country throughout the year, but the funds couldn’t be put to good use locally, McQuarrie said.

New York banks lent money to stock speculators and made profits on their deposits. In the early fall, local banks drew on their New York balances to pay farmers for their crops. When the New York banks repaid their loans, the speculators had to sell their holdings, causing stock prices to fall, McQuarrie said.

“The banking system was very different,” he said. “It was systematic, it was almost annual, and we always ran out of money in September.”

The cycle ended in the early 20s.^Number McCurry said the century began with the creation of the Federal Reserve, the central bank of the United States.

Experts said September’s losing streak is even more puzzling in modern times.

Investor sentiment is perhaps the most important factor, they say.

“I think there’s an element of this narrative being self-replicating,” JPMorgan’s Yoder said. “It’s the same concept of a recession narrative causing a recession. It becomes ingrained in the psyche.”

There are probably other factors at play, she said.

For example, mutual funds typically determine their tax gains and losses through what’s called a “tax loss harvest” at the end of their fiscal year, usually around October 31. Mutual funds often start providing investors with capital gains tax estimates in October.

Yoder said mutual funds appear to be increasingly “bringing” stock sales into September as a tax avoidance measure.

Yoder said investor uncertainty over the outcome of the U.S. presidential election in November and the Federal Reserve’s policy meeting next week, which is expected to deliver its first interest rate cut since the start of the coronavirus pandemic, could exacerbate September’s weakness.

“Markets don’t like uncertainty,” she said.

But ultimately, “I don’t think anybody has a good explanation for why this pattern continues other than it’s psychological,” McCurry said.