A New Report Suggests September Is the Worst Month to Buy Stocks. History Offers a Clear Answer for How to Handle This
Key Points
The reasons for the "September Effect" are not entirely clear.
While the situation is confusing, how investors should proceed is clear as day.
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The "September Effect" is officially upon us.
The broader benchmark S&P 500 (SNPINDEX: ^GSPC) has averaged a 1.13% decline in September from 1928 to 2021, according to Yardeni Research, worse than any other month of the year. Over the past 25 years, MacroTrends research says the S&P 500 has averaged a 1.4% decline in September.
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That's much worse than the S&P 500's average annual returns and has spooked some investors heading into the fall. History offers a clear answer for how to proceed.
Image source: Getty Images.
Why have stocks seemingly performed worse in September?
It's hard to pinpoint why stocks haven't historically performed as well in September as in other months. August is viewed as a dull month, so that could be one explanation: As institutional investors return from their summer vacations, they begin positioning their portfolios for the end of the year.
If they have done well, they may begin to lock in some gains, as most institutional investors that drive the bulk of flows are measured against the broader market annually. Beating the S&P 500 is one way they can justify charging higher fees, especially at a time when there is much greater and cheaper access to investing.
But if investors have performed poorly, they may start to consider tax harvesting, in which they sell certain positions in their portfolios trading at a loss to offset the taxes they may owe on gains. Ultimately, many experts have examined the September Effect and found no clear theory to explain it, so it could very well be a mere coincidence.
Here is how stocks have performed in September in each of the past five years:
2021: -4.76%
2022: -9.34%
2023: -4.87%
2024: 2.02%
2025: 3.53%
In short, the September Effect occurred from 2021 to 2023, but not so much over the past two years.
Could September also be the worst month to buy stocks?
A study published recently by the financial research site Macrobond examined the median and mean (or average) one-year forward returns of the S&P 500 if you had invested in a specific month of the year. While it didn't specify the exact time frame for the purchases, other parts of the study date back to 1928.
On a median basis, investing in the S&P 500 in September yielded an 8.7% annual return, which marked the weakest month. On average, investing in September led to a one-year return of 7.9%, placing it slightly above five other months, most of which occurred in the back half of the year.
| Month | 12-Month Mean S&P 500 Return | 12-Month Median S&P 500 Return |
|---|---|---|
| January | 7.7% | 11.4% |
| February | 8.4% | 9.8% |
| March | 8.6% | 9.7% |
| April | 8.2% | 9.7% |
| May | 8.7% | 9.8% |
| June | 8.8% | 8.9% |
| July | 8.1% | 9.2% |
| August | 7.8% | 9.5% |
| September | 7.9% | 8.7% |
| October | 7.7% | 8.9% |
| November | 7.6% | 11.1% |
| December | 7.8% | 11.4% |
Source: Macrobond and S&P Global. Note: Figures represent average returns for investors entering the market in each calendar month and holding for one year.
The mean is the average of all values in a data set, so while it provides an overall summary of the data, it can be influenced by outliers at both the higher and lower ends of the spectrum. The median is the middle number in a data set when the numbers are arranged from smallest to largest.
The median is likely a more representative number here because it will remove the effect of Septembers that were more volatile and don't represent the true trend. However, even if you use the mean figure from the data above, September shows only slightly better performance than the weakest month in the data set.
So, yes, history seems to suggest that investing in September may not be ideal, based on one-year returns, at least compared to other months.
How history says investors should proceed
Ajene Oden, a global investment strategist at JPMorgan Chase Wealth Management, recommends investors ignore this data and all of the superstitions that come with September. Oden said:
Markets face a confluence of geopolitical, fiscal, and monetary policy uncertainty -- prime conditions for volatility. But volatility and seasonality aren't destiny. Stay disciplined: If September gets choppy, treat it like a pullback -- not a prophecy -- and stay anchored to your long-term plan.
I would agree. Trying to time the market is extraordinarily difficult, and even the best investors have called it a bad strategy. Long-term investors needn't pay attention to September, as the power of time and compounding will render it irrelevant.
Between 1965 and 2025, the S&P 500 averaged a 10.5% compound annual gain, including dividends, for a total gain of 46,061%. That means even with the bad Septembers, investors did quite well.
If you have a 10- to 30-year runway and invest a portion of your earnings in the S&P 500 every month, just keep doing that and pay no attention to the September Effect. It's irrelevant.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and S&P Global. The Motley Fool has a disclosure policy.
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