Why September’s Reputation As The Stock Market’s Worst Month Shouldn’t Change Your Plan

What is the “September effect”?

The September effect refers to a long-running pattern in US stock market data: September is the only calendar month with a negative average return over the long term. Every other month has, on average, gone up. September, on average, has gone down.

Since 1928, the S&P 500 has averaged a return of roughly -1.1% to -1.2% for the month, and it has finished negative in a majority of years — the index was positive in only 44% of Septembers since 1950, the lowest positivity rate of any month. No other calendar month has averaged a negative return over that stretch.

Is that statistic actually reliable?

The statistic itself is reliable. What it can support is more limited than it sounds.

An average built from nearly a hundred years of data is dominated by a handful of extreme outliers. The single worst September on record, in 1931, saw the S&P 500 fall by close to 30% during a Depression-era banking crisis. Remove a small number of years like that and the “worst month” pattern gets a lot less dramatic. The average also blends genuinely calm Septembers with genuinely bad ones; a month that’s negative 56% of the time is also positive 44% of the time, which is close to a coin flip once framed the other way round.

None of that means the pattern is fake. It means the pattern describes what has tended to happen across a century, not what will happen in any specific year. Whether a given September is good or bad has come down to the same things that drive any other month: interest rate decisions, earnings, economic data and investor sentiment, not the position of the month on a calendar.

Why doesn’t a historical average predict this September?

A month with a negative average return can still be positive nearly half the time. Treating an average as a forecast confuses a long-run tendency with a short-run prediction, and the two aren’t the same thing.

There’s also a self-fulfilling risk worth naming: a certain amount of September’s reputation exists because enough investors expect it and behave more cautiously as a result, which can itself contribute to softer markets. That’s a genuinely different mechanism from “September is fundamentally a bad time to hold shares,” and it isn’t a reason to make decisions based on the calendar rather than on the actual portfolio, goals and circumstances involved.

What’s actually worth doing in a seasonally weak month?

Very little that’s specific to September, and quite a lot that’s worth doing at any point in the year:

• Check whether the portfolio’s mix of shares, bonds and cash still matches the plan it was built around, rather than having drifted after a strong run in any one area.
• Keep any regular contributions going rather than pausing them, since stopping contributions in a weaker month means missing out on buying at lower prices if the dip does happen.
• Confirm that money needed in the near term is somewhere accessible and not exposed to short-term market swings, regardless of what month it is.
• Resist making a change purely because of a headline about the calendar, rather than because something about personal circumstances or the underlying plan has actually changed.

A seasonally weak month is a reasonable prompt to check a plan is still on track. It isn’t, on its own, a reason to depart from it.

FAQ

Is September really the worst month for the stock market?

By long-run average, yes — the S&P 500 has produced the lowest average monthly return of the calendar in September going back close to a century, and it’s the only month with a negative average return over that period. That’s a statement about the long-run average, not a guarantee about any individual year.

Why does September have a bad reputation if it’s positive nearly half the time?

Because “average” and “typical” aren’t the same thing. A small number of extreme down months, including historic crises, pull the long-run average lower even though many individual Septembers have actually been calm or positive. The reputation comes from the average; the lived experience in any given year is closer to a coin flip.

Should I sell shares or move to cash before a seasonally weak month?

Selling based on the calendar rather than a change in circumstances or strategy tends to work against long-term investors, since it risks missing any recovery and locks in the impact of a downturn that may not even happen that year. Decisions about asset allocation are better driven by financial goals, time horizon and risk tolerance than by which month it is.

What actually causes stock market volatility in September?

There’s no single confirmed cause. Theories include the end of summer trading and a return to more active decision-making after the holiday period, portfolio rebalancing by institutional investors, and the coincidence of several major historical downturns occurring in September or October. None of these fully explains the pattern, and most analysts treat it as a statistical curiosity rather than something with a clear driving mechanism.

Does this pattern apply to UK markets too?

The most detailed long-run seasonality data comes from US indices such as the S&P 500, which has the longest continuous data history. UK indices have shown broadly similar late-summer softness in some studies, though with a shorter, less exhaustively studied data history. The underlying point, that a historical average shouldn’t dictate an individual decision, applies regardless of which market is being discussed.

About the author

This article is provided by Sedulo Wealth, the financial planning arm of Sedulo Group. Sedulo Wealth works alongside Sedulo’s accountancy, tax and business advisory teams to give clients a joined-up view of their finances, and its advisers are authorised and regulated by the Financial Conduct Authority.