September Effect 2023: Why Stocks Might Dip This Month - Historical Trends & Insights
Explore the September Effect, a historical trend where stock markets often experience declines in September. Learn the key reasons behind this phenomenon and what 2023 might hold for investors.
Understanding the September Effect is crucial for investors navigating the stock market this month.
Historically, September has been known as the most challenging month for stock market performance, a pattern referred to as the September Effect. While past data suggests a tendency for market downturns during this period, it doesn’t guarantee losses every year.
Key Highlights
- The September Effect is a seasonal anomaly where stock returns tend to weaken in September.
- Since 1945, the S&P 500 has frequently recorded losses in September, averaging around -0.7%.
- Various theories link this effect to behavioral changes around seasonal events like the start of the school year and holidays.
What Is the September Effect?
The September Effect describes the recurring pattern of stock market declines during September. Data since 1945 shows this month often underperforms compared to others, with April typically being the strongest month for stocks.
However, this trend isn’t absolute. For instance, the S&P 500 posted positive returns in September from 2016 through 2019, illustrating variability in market behavior.
Theories Explaining the September Effect
Researchers from INSEAD, the National University of Singapore, and Erasmus School of Economics suggest that the September Effect may be linked to behavioral shifts caused by seasonal events such as students returning to school and the Labor Day holiday.
The study found stock returns typically drop between 0.6% and 1% following major U.S. school holidays, potentially influencing September’s weaker performance.
JP Morgan Wealth Management highlights that market psychology and investor sentiment might also play a role, where belief in the September Effect itself could contribute to market declines.
Market Snapshot: Early September 2023
August 2023 closed with declines across major indexes: Dow Jones Industrial Average fell 2.5%, Nasdaq dropped 2.2%, and the S&P 500 decreased by 1.7%.
Despite these declines, the CBOE Volatility Index (VIX) stood at a low 13.57 at the end of August, signaling relatively calm market conditions and low expected volatility for September.
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