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“September Effect”: The “September effect” in the market – Stock market myth or statistical anomaly

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«September Effect»: Το «φαινoμε νο του Σεπτεμβρiου» στην αγορa &ndash ; Χρηματιστηριακoς μyθος or στατι στικor ανωμαλα

What the September figures show for the markets

As usual, from the end of August, investors start to discuss about the “September Effect”, a phenomenon of historically low stock market returns, observed during this month.

And if one observes the statistics of the last almost a century, one could almost certainly say no to yet another stock market myth.

September is a bad month for stocks.< /strong> According to Dow Jones data, US stocks have, on average, fallen 1.12% in September, based on data since 1928.

The statistics are valid for all main indicators. Also, the “September Effect” doesn't seem to be limited to the US, as records show similar stock behavior in other markets as well. According to eToro market research, the average September return for 15 major global indices (including the SPX, TSX, DAX, CAC, FTSE-250 and others) over the past 50 years was minus 1.1%.

< p>Change of scenery

Market observers emphasize, however, that lately, the “September Effect” has lost some of its momentum. In the last 20 years (2002-2022), September brought negative returns on ten occasions, that is, only half of the time. But over the past decade, the S&P 500 has been in the red six times, or 60% of the years, confirming the long-term statistics.

Investors, economists, psychologists and ordinary people have offered as many explanations for the September Phenomenon as many clouds as there are in the sky in September.

Some theories say what's causing the effect is rebalancing from large mutual funds, whose fiscal year ends in September. Fund managers dump losing positions to reduce the amount of taxes they have to pay (and to look better in their investor presentations).

The 'self-fulfilling' prophecy >

Another hypothesis, stemming from human psychology, invokes the phenomenon of the self-fulfilling prophecy. As investors read about the “September effect” in the media, they don't want to take any chances with the statistics and therefore liquidate. This theory seems plausible at first, but if it were true, markets would crash every September, which, thankfully, they don't.

Some other explanations invoke summer vacation and, again, psychology. When investors return from their August holidays and return to their offices, away from sunny beaches and with the winter gloom settling in, they may be prone to taking a more negative view.

And according to TipRanks, “suddenly, all those little economic, financial clouds that were easy to peel away in the warm summer light, start looking like an impending storm, requiring immediate action (selling)” .

TipRanks also writes that there is a study from the University of Cambridge, dating back to 2017, that finds evidence of seasonality in investors' risk aversion trends, which affects their choice of mutual funds. Simply put, investors tend to prefer riskier funds in the spring and safer bets in the fall. So there may be something going on with investor psychology and the September effect, but none of that explains why stocks do so well in November, December and January.

In short, the September phenomenon remains an unexplained statistical quirk.

There's no clear reason, but it's usually a month without the kind of news that can push stocks higher, like big corporate earnings, Jay Hatfield, managing director of Infrastructure Capital Advisors, told the Wall Street Journal.

“The basic theory is that good news almost always comes from companies and bad news comes from random events.” Hatfield said. And he cited the recent downgrade of the US credit rating by Fitch as an example.

So far this year, investors have been relieved of fears of high inflation, a significant decline in corporate profits, a possible recession, a stalemate on the US debt ceiling and the biggest bank failures since the global financial crisis.


Even if the September effect is real, it is not something on which you should base your investment strategy. JP Morgan says you should “be careful trading when there are market anomalies because they don't happen all the time – and when they do, it's hard to know why. A better strategy is to invest in a broadly diversified portfolio that can help weather the ups and downs of the market. Buying and selling stocks should be based on your financial goals, risk tolerance and investment horizon – not sentiment or statistical anomalies.”

Source: 24h.com.cy

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