Each year, as summer winds down, financial headlines begin to circulate the same warning: September is the worst month for stocks. The idea, often called the “September Effect,” has become a piece of market folklore.
Over the past 75 years, the S&P 500 has delivered an average return of -0.7% during the month of September.[1] By contrast, the index averages a monthly gain of +0.6% over all months. This well-worn adage contains just enough historical data to sound convincing, but it leaves out important context. For long-term investors, the key takeaway is that not all seasonal stories are worth acting on.
Origins of the September Effect
There are many theories as to why the September Effect has remained a recurring narrative. Some cite the end of summer holidays, when traders return to work and take profits. Others point to mutual funds selling underperforming stocks ahead of their fiscal year-end, or to broader economic cycles that sometimes coincided with September downturns. However, when studied closely, the so-called effect proves inconsistent. Many Septembers have delivered positive returns, and the variation from year to year is wide. While the averages are intriguing, they don’t hold predictive power.
In reality, the reason for lower returns in September is mostly due to a few “bad” Septembers that pull the long-term average down. September was the month when the original Black Friday occurred in 1869, as well as the month when the 1929 downturn began. September also featured significant single-day dips in 2001 after 9/11 and in 2008 when Lehman Brothers collapsed at the peak of the subprime crisis.
Why the Story Sticks Around
If September’s record is mixed at best, why does the myth persist? The answer begins with investor psychology. Humans are hardwired to see patterns, even in random data. A few rough Septembers, especially in memorable years like 2001 and 2008, reinforced the idea that the month carries unusual risk.
Media outlets also play a role. Just as with the “Sell in May and Go Away” adage that we profiled previously, seasonal rules like “the September Effect” make for catchy headlines and repeatable stories. They offer a simple frame for complex markets, and in doing so, they capture attention. However, simplicity can be misleading. The reality of market performance is messy and far more influenced by economic fundamentals, interest rates, corporate earnings, and global events than by turning the page of the calendar.
Time in the Market Beats Timing the Market
For investors, the real danger in market myths lies not in the stories themselves but in the temptation to act on them. Timing the market is notoriously difficult, and attempts to do so often cause more harm than good. Selling ahead of September to avoid anticipated losses might mean missing out on years when the market moves higher instead.
Consider that in some decades, September has been among the better-performing months. Even in years when September returns were negative, the subsequent months often recovered those losses and more. By stepping out of the market, investors risk undermining the power of compounding, which is the engine of long-term financial security.
Staying Grounded
“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” ~Mark Twain
Twain’s wry humor reminds us that risk is ever-present, regardless of the date on the calendar. Markets react and move based on earnings, policy shifts, geopolitics, and new information – not folklore.
At North Berkeley, we view seasonal myths as curiosities rather than strategies. It’s natural to notice patterns, and even fun to explore the history behind them. However, seasonal anomalies should never drive portfolio decisions. History shows that staying invested, rebalancing thoughtfully, and maintaining a diversified portfolio are far more reliable strategies than trying to sidestep a single month.
Resources
[1] “Monthly Returns from 1950-2024″. Carson Investment Research, YCharts 07/30/2025.
