WHAT IS SEPTEMBER EFFECT?
Being an investor is never easy. You have to be aware of everything regarding your investment, the stats, predictions, advancements, recessions, etc. And if these things were not enough already, the calendar also plays a role in making an investment decision. September 2021 also showed signs of worry for the investors in different trading markets.
The worst month to invest in stocks is September, mutual funds and cryptocurrency. Historically, the stock market has performed its worst in September. The Dow Jones Internal Average (DJIA) and the S&P 500 have seen an average decline of 0.8% and 0.5%, respectively, since their inception. The Nasdaq’s composite index has fallen an average of about 0.5% in September since 1971. Thus, we call this bearish market the September effect. However, the September effect is worldwide and not only on the U.S markets.
Let’s work out the reasons for this September effect:
THE BEGINNING OF FALL
September is the beginning of the fall season. During summers, a lot of investors take a break from trading and go on vacations. When they return, the investors prefer exiting from the positions they were planning to sell to start their trading fresh. This behavior increases the selling pressure on the market, and thus, the market declines.
In addition to this, fall indicates the start of the new academic year after summer vacations. Therefore, during September, many investors liquidate their holdings to bear the schooling and other expenses. Thus, it also contributes to the decline of the market as the number of free stocks increases.
MUTUAL FUND BEHAVIOUR
September marks the end of the fiscal year for many mutual funds. The managers usually sell their losing positions before this time to renew their trading portfolios. This trend in the mutual fund market contributes to the perception of September as a poor month for investing. Moreover, most mutual funds cash in their holdings to harvest tax returns in September, forming another reason for the decline.
THE INVESTOR PSYCHOGRAPHICS
Most investors are being told and taught that September is not suitable for investing. Therefore, those investors who are not on vacation and have to bear school expenses also hold back their trading for this month. This behavioral pattern and the investor psychographics contribute a great deal to the September effect.
However, the September effect does not always stand true as there are times when markets make profits, even during September. But the thing exists, and there is no doubt in that.
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