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The September Effect refers to the stock market's track record of underperformance during the month of September. September has historically been the worst-performing month for the stock market, with average returns lower than those of any other month. That said, the evidence behind this trend being related to the time of year is flimsy at best.
Analysis of stock market returns by month has found that September is the worst month, at least by long-term average. From 1928 to 2025, the S&P 500 averaged a return of negative 1.13% in the month of September, according to Yardeni Research. That's by far the lowest average return, with February coming in second at negative 0.10%. No other month has averaged a negative return.
However, this doesn't mean September is always a bad month for stocks. In fact, over that time period from 1928 to 2025, there have been 53 months of September when the stock market has lost money, and 43 months when it has made a profit. There have also been years when stocks performed their best in September.
The September Effect is a market anomaly without a concrete explanation. Many theories exist for why it happens, with one of the more plausible being that September is when investors are interested in tax loss harvesting start selling losing positions. This selling creates downward pressure on stock prices.
Another theory involves institutional investors that rebalance their portfolios every quarter. Since September is the end of the third quarter, it's when hedge funds and mutual funds that need to reduce their stock positions will sell off holdings to rebalance. However, if this theory was accurate, it would make sense to see similar results at the end of the other three quarters. March, June, and December all have positive average returns, casting doubt on this theory.
It's also possible that the September Effect is related to corporate profit-taking to bolster their balance sheets or even parents selling stocks to pay for back-to-school shopping and college tuition. Perhaps most likely, the September Effect could just be random chance that evens itself out over the next 100 years.
The September Effect is an interesting piece of investing trivia, but it's not something that should change how you invest in stocks. You can't rely on it to predict what will happen in September. After all, even if that month has been the worst on average, stock prices have only declined about 55% of the time -- barely more than the odds of a coin flip.
Monthly returns also shouldn't be a major concern for long-term investors. When you're investing in companies and funds that you plan to hold for five to 10 years or longer, then a potential dip in September isn't going to make or break your portfolio. Short-term price movements are important for traders, but that's not an approach The Motley Fool recommends.
Look at it like this: You probably wouldn't pass on investing in a stock you love just because it's September. A great company is a great company, no matter when you buy it. Invest the same way in September that you do throughout the rest of the year.
In September 2002, the S&P 500 fell by 11%. It was the market's worst month of the year, and while it would seemingly be evidence of the September Effect, it doesn't tell the whole story. The early 2000s were also when the dot-com bubble burst, resulting in a stock market crash that hit its lowest point in October 2002.
September 2002 was a bad month, but there was already a bear market at the time. The same is true with many other supposed instances of the September Effect, including when it happened in 1931 and 2008, two other examples where the stock market was already doing poorly.
