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  • The September effect in investing – THIS IS WHAT YOU NEED TO KNOW!
  • The September effect in investing – THIS IS WHAT YOU NEED TO KNOW!

The September effect in investing – THIS IS WHAT YOU NEED TO KNOW!

What is the September effect?

Many investors have the idea that September is a bad month in the investment world. Research shows that this is not just a feeling, but there is certainly a grain of truth in it. The question now is: where does this so-called ‘September effect’ come from?

Possible causes for the September effect

The September effect refers to the fact that lower returns are achieved in this month than in other months. However, it remains difficult to explain where this effect comes from. In general, it is assumed that this has to do with the summer holidays in the previous months. Investors return from vacation in September and now focus on the end of the year and not on the coming month.

Another theory is that many investors have to pay for the school fees of their children and get this money from selling shares . However, it remains difficult to find a clear cause. That is why many people consider it more a coincidence than an actual reason for the September effect.

The September effect statistically speaking

To demonstrate the September effect through statistics, one of the most important indexes in the stock market, the Dow Jones, was examined . This shows that in the past hundred years, September is the only calendar month with a negative return. However, the effect is not very overwhelming and certainly has no predictive value. Suppose that you had invested exclusively in September over the past hundred years, you would certainly have made a profit over this period. If you had only invested in September in a calendar year (for example 2018), you would have had a negative return.

The October Effect

In addition to the September effect, there is also the October effect. The month of October has had to deal with a number of major crises over the past hundred years. For example, the stock market crash of 1929 started in October and there was Black Monday in 1987. However, the month of September has also had to deal with a number of major stock market declines. 

The stock markets plummeted after the 9/11 attacks and the banking crisis of 2008 flared up in September. Here too, however, it appears that this effect is more a temporary deviation from the market than a clear cause.

Has the September effect disappeared?

According to the investment website Market Realist, the September effect has been disappearing in recent decades. Over the past 25 years, the average return for September for the S&P 500 (major stock index of the United States) has been only -0.4%, while the average monthly return is always positive. In addition, there have been no major stock market declines since 1990, such as the stock market crash in 1929. One explanation for this is that many investors sell their shares in August.

Other explanations for the September effect

The September effect is not limited to the Dutch stock market, but applies to stock exchanges all over the world. Some analysts believe that the negative effect on the markets occurs in September because many investors change their portfolios at the end of the summer to earn money. Another reason could be that most investment funds hold cash in order to absorb possible tax losses.

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