Traders consistently warn of stocks slumping in September – and are right to do so based on historic data. The S&P 500 has averaged a -0.6% return in September since 1950, while the NASDAQ has dropped 0.9% since 1985. Those are the worst average monthly returns for each index.
Zoom out, however, and the story flips. The S&P 500 has posted an 8% annualized return since 1950 while the NASDAQ returned 11% annualized since 1985. That’s why investors are wise to look past seasonal dips and stick with their investments, including the best index funds and exchange-traded funds (ETFs) that track the market, and let compounding do the heavy lifting.
Is the September Effect real? How stocks have historically performed in September
Since 1950, the S&P 500 has posted a -0.6% return in September, making it the weakest month in the index’s calendar. Average returns since 1980 and 2000 in September have been worse.
It’s not just a few bad Septembers over the decades that have pulled the S&P 500 down. Since 1950, the index has had 41 negative Septembers vs. 34 positive ones.
How the S&P 500 has performed in September since 1950
Period | Positive Septembers | Negative Septembers | Average September return |
|---|---|---|---|
Since 1950 | 34 | 41 | -0.6% |
Since 1980 | 22 | 24 | -0.9% |
Since 2000 | 13 | 13 | -1.4% |
Average S&P 500 returns by month and year
Aside from September, February is the only other month to average a negative S&P 500 return since 1950, delivering investors -0.03%.
Despite concerns about an October Effect following the September doldrums, October has actually delivered an average return of 0.9% for investors. The months following – November, December, and January – have some of the strongest average returns since 1950.
Looking annually, the S&P 500 has delivered an 8% annualized return since 1950, a 9% annualized return since 1980, and a 6% annualized return since 2000 despite Septembers that are sometimes duds. Over the long term, the S&P 500’s returns have historically been an unmatched wealth-creation machine.
Period | Annualized return | Average monthly return |
|---|---|---|
Since 1950 | 8.2% | 0.7% |
Since 1980 | 9.3% | 0.8% |
Since 2000 | 6.1% | 0.6% |
How the NASDAQ has performed in September since 1985
The NASDAQ isn’t immune to the September Effect. In fact, it has performed worse than the S&P 500. Since 1985, the NASDAQ has had an average return of -0.9% in September and has had 18 positive Septembers versus 22 negative ones. Since 2000, the average NASDAQ return in September has been -1.9%, with 12 positive months and 14 negative.
Period | Positive Septembers | Negative Septembers | Average September return |
|---|---|---|---|
Since 1985 | 18 | 22 | -0.9% |
Since 2000 | 12 | 14 | -1.9% |
Still, the NASDAQ has posted positive average returns for each month outside of September. Like the S&P 500, the NASDAQ’s November, December, and January post particularly strong returns, on average.
Despite rocky Septembers, the NASDAQ’s annualized return is an impressive 11.5% since 1985 and 6.8% since 2000. Like the S&P 500, the NASDAQ has been a reliable source of returns over the long term even if September tends to be a down month.
Period | Annualized return | Average monthly return |
|---|---|---|
Since 1985 | 11.5% | 1.1% |
Since 2000 | 6.8% | 0.7% |
What causes the September Effect?
There are a number of theories to explain why stocks suffer in September:
- Fund behavior: Mutual funds, hedge funds, and pension funds often rebalance at the end of the third quarter and may sell stocks to lock in gains or adjust asset allocations. Funds may also sell stocks for tax-loss harvesting.
- Behavior factors: Since many investors believe September could be a weak month, sentiment could turn cautious, creating a self-fulfilling prophecy.
- Calendar effects: September coincides with events that can put downward pressure on markets that are already sensitive, since summers tend to be low-volume and low-intensity periods, with traders on vacation. September can bring uncertainty over government funding and spending, and parents might sell stocks to pay for back-to-school expenses.
For investors, the data shows a clear takeaway: Short-term seasonality like the September Effect is essentially irrelevant when considering long-term strategy and historical gains from the market. Staying invested through index funds and ETFs is a simple way to keep portfolios aligned with the market’s historic long-run growth.
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