Why September and October Spook Investors — and What It All Means for You
Written by
John Csiszar
Edited by
Jenna Klaverweiden
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September and October have traditionally struck fear in the hearts of investors. At the tail end of the “sell in May and go away” strategy, September and October have a reputation for damaging portfolios. But is there any truth to this belief, or is it simply superstition?
Here’s a look at what the hard data actually says, along with the role that psychology and seasonality might play on trading patterns.
Also see why Warren Buffett says you should invest when the market is down.
September Is Historically the Worst-Performing Month
Historical returns show that investors might be right to be wary of September’s arrival. As reported by Reuters using data from CFRA, September has by far the worst average return of any month.
Since 1945, the S&P 500 has fallen by an average of 0.6% in September, making it one of only two months with an average negative return. The other is February, with an average negative return of 0.2%. This means that September, historically speaking, has provided returns three times as poor as the next-worst month.
Half of the Market’s Top 10 Single-Day Declines Were in October
Although September is traditionally a weak month, October actually fares quite well. In fact, average monthly returns in October are 0.9%, topping the performance of February, May, June, August and September. So why do investors fear October? Because historically, the market’s biggest single-day swoons tend to hit in October.
In fact, according to data from the Hartford Funds, the evidence is quite overwhelming. Five of the biggest 10 single-day drops in history have occurred in October — and three of the others occurred during March 2020, as the COVID-19 pandemic panicked the markets. This means that outside of that extraordinary event, October was responsible for five of the biggest seven single-day drops in history, ranging from 6.87% to 20.47%. Those are pretty compelling statistics.
Seasonal Patterns
So what’s really behind all this disruption in September and October? Is it all just a glitch on the calendar? The reality is that there are some seasonal trends that can exacerbate weakness in September and October.
For starters, market traders tend to come back from their summer vacations in September, according to Summit Financial. When trading volume picks up, market movements can be more dramatic.
Traders often begin their tax-loss selling in September so their portfolios are correctly positioned moving into year-end. An increase in selling by portfolio managers can put a lot of pressure on the market.
This is also the time of year when Congress typically reconvenes after its August recess, potentially moving markets with proposed or enacted legislation.
Lastly, many companies report their quarterly earnings in October, often with market-moving consequences.
While a single one of these factors in isolation might not be enough to jostle the stock market, taken as a whole, there’s some definite market-moving potential there.
The Power of Self-Fulfilling Prophecy
With such a long-term track record in place, the September and October effects are unlikely to go away. Investors now anticipate some type of market trouble in these months, meaning some may sell their positions simply to reduce their risk. This makes the effect a self-fulfilling prophecy, because if enough traders dump their positions in anticipation of market declines, share prices will fall.
The financial press can often amplify this effect as well, as the history of declines in September and October becomes daily news during those months.
What It All Means
Long-time investors are well aware that past performance is not a guarantee of future results. And it’s certainly true that not every September provides poor returns. In 2024, for example, September provided an outstanding 2.5% return, making it the sixth-best month of the year.
So trading around September and October is likely to be a gamble at best. But if markets do trade down in those months, long-term investors could actually benefit by adding to their positions during any sell-offs. For this reason, it’s good to be aware of the historical trends in September and October.
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