Something that makes even seasoned investors a little antsy: the “September Slump” and “October Ouch.” You’ve probably heard whispers, or maybe even full-blown warnings, about how these two months tend to be a bit of a rollercoaster for the stock market. And guess what? History often backs up that gut feeling.
It’s not just an old wives’ tale; there’s some real data behind why many investors brace themselves as summer fades. Let’s look at the S&P 500, which is a pretty good benchmark for the overall U.S. stock market. Historically, September has been the worst-performing month for the S&P 500. We’re talking about an average loss, not a gain, over many decades.
September is the only month with a negative average return for the S&P 500 between 1950 and 2023. We’re talking about an average drop of about -0.7% (Source: S&P Dow Jones Indices LLC). That might not sound like a huge number, but when you consider it’s an average over more than 70 years, it’s pretty significant. It means September more often than not sees a dip.
Now, what about October? While October isn’t typically negative on average, it’s often referred to as “bear killer” or “sell-off” month. Why? Because many of the biggest market crashes and corrections in history have either started or intensified in October. Think about the Panic of 1907, the Black Tuesday/Thursday/Monday crashes of 1929, Black Monday in 1987, and even the depths of the 2008 financial crisis saw some brutal days in October. So, even if the average return isn’t negative, October has a notorious reputation for volatility and some seriously stomach-churning drops.
So, why do these months get such a bad rap? There’s no single, universally agreed-upon reason, but a few theories float around:
- “Back to School” Blues: Summer vacations end, traders return to their desks, and perhaps they start reassessing their portfolios, leading to some selling.
- Fiscal Year End: For many companies and investment funds, their fiscal year ends in September. This can lead to “window dressing,” where fund managers sell off underperforming stocks to make their portfolios look better, or simply rebalance, causing some market pressure.
- Psychology: Let’s be honest, if everyone expects a bad September, that expectation itself can influence trading behavior. It becomes a bit of a self-fulfilling prophecy.
- Economic Reassessments: As the year winds down, there might be more clarity on economic data, corporate earnings, and upcoming policy changes, leading investors to become more cautious.
Does this mean you should panic and sell everything in August? Absolutely not! Remember, these are averages and historical tendencies, not guarantees. The market doesn’t always follow the rules, and a strong September or October isn’t out of the question. Smart investors know that trying to “time” the market based on these seasonal patterns is usually a losing game.
The best strategy remains consistent: stay diversified, invest for the long term, and don’t let short-term historical trends dictate your entire investment plan. However, being aware of these historical patterns can help you understand why there might be more chatter or volatility around these times.
About Michael
Michael is a CFP® with over 15 years of experience working with families accumulating and preserving wealth. Do you need help planning for your financial future? Contact us today to set up a meeting to talk about your goals.