The September Effect: What Investors Should Know
Every year, as we enter September, we are likely to hear or read that September is historically the worst month for the stock market. While this trend exists, and is noteworthy enough to have it's own term, is it something that should make the average investor worried? Let's get into it.
What Is the "September Effect"?
The "September Effect" refers to the historical tendency for U.S. stocks to perform worse during September than during other months. Since 1928, the S&P 500 has averaged a 1.2% decline in September, making it the worst performing month based on average returns. During that same period, S&P has been negative in September 56% of the time.2
That means, however, that we have seen growth in September 44% of the time. The S&P 500 gained 2.02% in September 2024 and another 3.53% in September 2025.1,2
Why September?
There isn't a single reason for this trend, but researchers and market observers have suggested several possible reasons over the years.
One possibility is simply investor behavior. After the summer months, investors and institutional managers return to their normal schedules and may reassess their portfolios, reposition investments or respond to new economic information. It's also possible that it has become a self-fulfilling prophesy and some investors act based on historical trends.
September also marks the end of the third quarter, which can bring additional portfolio rebalancing and positioning by institutional investors. At the same time, investors are beginning to look toward year-end economic data, corporate earnings and Federal Reserve decisions.
These factors may contribute to increased market activity or volatility, but they don't provide a reliable explanation for why September has historically underperformed.
What Should Investors Do?
Probably not much simply because it's September. We know what has happened in the past during September, but that does not tell us what will happen this month. You can find countless articles warning against trying to time the market. Just search "time in the market vs. timing the market". Although there have been down years, the S&P 500 has averaged about 10% annually since its launch in 1957.3 U.S. stocks have historically been positive 98% of the time over 15-year periods, compared with just 54% on any given day.
Trying to invest around the September Effect also means making two difficult decisions: when to get out and when to get back in. If the market doesn't follow its historical pattern, an investor attempting to avoid a September decline could instead miss gains. As discussed earlier, we saw gains in the last two Septembers.
The Bottom Line
September really does have a poor historical track record, but historical patterns aren't predictions. Rather than making investment decisions based on a particular month, investors should focus on the fundamentals of their financial plan:
- Is your portfolio appropriately diversified?
- Does your investment mix match your time horizon and risk tolerance?
- Have your financial goals changed?
- Are you prepared for normal periods of market volatility?
The September Effect is an interesting piece of market history and a good reminder that markets don't always behave the way we expect. For long-term investors, a thoughtful financial plan generally shouldn't depend on whether a particular month has historically been good or bad.
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