Stock Market Anomalies: September Effect

There are no guarantees when it comes to investing in the stock market. Well, there is one guarantee, and that is you could lose most if not all of your portfolio if the stock market crashes.

Of course, that all depends on if you followed the one simple rule of not putting all your eggs in one basket. However, there is one almost guarantee when it comes to the stock market and that is one of its mysterious annual anomalies: the September Effect.

What Is The September Effect?

It’s August now and if you want any guarantees its that all your favorite investing forums or websites are talking about the September Effect. That is a term used to describe the month where your gains could hit a rough patch. Think of the September Effect like that bad pothole when you’re driving down a street that you can’t avoid.

This is a market anomaly that produces weaker market returns. It doesn’t happen every single year, but historically, it’s been a month of crippling disappointment for some. It’s not a nasty enough effect to break the bank, but it still burns as much as taco night.

In 2013 a research paper was published that showed just how bad September is. When looking at 70 different countries and investigating monthly returns over decades, September turned out the worst month measured by median return.

So what exactly causes this almost unavoidable occurrence?

What Causes The September Effect?

There are a number of running theories that explains the September Effect. Despite the stock market being as volatile as it is, the September Effect seems to be the only trend worth planning for every year.

With millions of investors in the stock market, you would think someone would figure out what causes this stock market anomaly. Maybe it’s something no one has considered yet.

Everyone could be looking for the obvious that causes of September effect, but not finding it, nor finding necessarily enough reasons to stay out of the market either. After all, it could be one of those years where September was the best month, right?

Investors around the world have their eyes glued to their trading screens looking for any explanation for the anomaly. It could be something as easy as investors coming back to work after taking a summer vacation and making moves. It could be smart investors trying to get ahead of another anomaly called the January Effect by selling their stock for tax reasons.

The September Effect anomaly could be something so easily explained, but it could also be something as silly as a combination of the Earth’s axis tilt for Autumn or whichever football team starts off 2-0 in September. Regardless of the reason, historically, September has been a disappointing month for investors.

While some say it’s debatable whether or not stock market anomalies even exist. It really depends on who you ask and what time period you’re asking them about.

While it doesn’t happen every single year, there’s been enough upsetting Septembers for enough people to take notice beyond those wearing a tin-foil hat.

After reading about the September Effect, is this an anomaly you’ve heard of before?

Do you believe the market moves independently of historical trends or do you think enough people anticipate the September Effect at this point that it’s affecting their investment decisions?

Knowing what you know about the September Effect, is this something you’ll consider taking a part of knowing it could affect your stocks.

Blog posts may contain affiliate links

Others have liked these posts