The September effect is a phenomenon where stock market returns tend to be weaker in this month compared to other months in the year. We crunched the numbers to see if September is really the worst month and by how much, and what the strongest months are.
Analysis by Finder shows that September is consistently the worst-performing month for global stock markets going back 50 years. Markets across four major indexes (S&P 500, FTSE 100, Nikkei 225 and Euro Stoxx 50) closed an average of 1.2% lower than the start of the month on average.
September has the worst performance in the Euro Stoxx 50, down 2.13% at the end of the month. The FTSE 100 sees an average decrease of 0.98% in September, while the S&P 500 and Nikkei 225 see declines of 0.88% and 0.83% respectively.
When the four indices are averaged together, April is the best-performing month for the stock markets over the last 50 years, with average gains of 1.58%. This is closely followed by December, which sees average gains of.
However, the actual best month varies between indices. The S&P 500 and Nikkei 225 both have the best performance in April historically (increasing 1.52% and 1.7%, respectively), while the FTSE 100 really gets into the holiday spirit with high returns in December (up 2.23% on average).
The Euro Stoxx 50 seems to reward those who weather the difficult September with gains in October that more than make up for the previous month’s losses (up 2.82% in October vs. September’s -2.13%, a swing of 4.95%). The charts and table below show the best and worst months for each stock market index.
There is much speculation about why September has such a poor track record. Some theories focus on institutional factors, such as investors selling near the end of the third quarter, or funds offloading less successful investments before the quarter closes.
Other proposed reasons behind the effect are seasonal. One theory holds that as investors return from summer holidays in September, they want to secure profits and offset gains with losses before the year ends.
A final theory is that this could all just be a self-fulfilling prophecy as negative market expectations in September turn into reality.
All in all, the September effect is thought to be a market anomaly, not one that should have any real bearing on investment decisions.
"In 2024, we had a pretty terrible start to August and most markets and indices like the S&P 500 managed to recover most of the lost territory as we made our way towards September. However, it doesn’t look like September 2024 is set to be a blockbuster month for the markets, and this falls in line with our research. History doesn’t tend to repeat itself, but it does tend to rhyme. Although I don’t believe in investing superstitions or the “sell in May and go away” adage (where investors supposedly shouldn’t return to the stock market until the end of October), our data shows that September is historically the worst month for the markets.
“There’s obviously plenty of factors at play in any given year, and if you’re invested for the long term, a poor month shouldn’t really bother you. But, this is just another excellent piece of data to show why “time in the market” is much more important than trying to “time the market”. However, if people are placing regular “sell” orders, take extra care in September and perhaps throw some salt over your shoulder."
Monthly closing historical data from Google Finance for the S&P 500 and the Nikkei 225 was analysed over the last 50 years, the FTSE 100 since its inception in 1986, and the Euro Stoxx 50 since it began in 1998.
Sophie Barber
Communications Manager
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