When is the best time to invest? This is one of the big questions that many investors, especially first-time investors, ask themselves. The reason is obvious: no one wants their investment to lose value from the very first moment.
September is one of the most notorious times of the year for investors. It has long been considered the worst month of the year for the stock market. But is that a myth or reality?
The truth is that September deserves its bad reputation. Traditionally, September is the worst month of the year for Wall Street. According to market data compiled by Dow Jones since 1928, the average September move for the S&P 500, a U.S. benchmark index, is minus 1%.
september s&p 500 stock market
Source: LPL Research.
The Dow Jones Industrial Average, created in 1896, measures the performance of the 30 largest companies listed on the U.S. stock market. Since 1950, this index has declined an average of 0.8% in September.
The Nasdaq has not been able to escape this negative trend. It is the second largest stock exchange in the United States, was founded in 1971 and is a group of technology companies. Its composite index, the Nasdaq Composite, which includes more than 3,000 companies, fell an average of 0.5 percent in September trading. But the average doesn’t mean the stock market fell every September. Some ended in positive territory.
As the chart shows over the past decade, the U.S. stock market turns red more often in September than in other months of the year.
September NasdaqSource.
Why is September the worst month for the stock market?
However, experts point out that this is a market anomaly. The price drops suffered in September are not related to a specific event, such as the March 2022 plunge with the Russian invasion of Ukraine, or to the release of news, such as the November 2020 surge following the announcement of the first Covida vaccine.
But why is September traditionally a bad month for the stock market? Analysts disagree on the cause of this phenomenon. Some believe that the negative impact on the markets is due to a behavioral bias. They believe that investors sell stocks at the end of the summer in order to have more cash on hand after increased spending during the vacation season.
A similar theory is that investors reduce trading in August because of the holidays. When they return from summer vacation, they decide to sell stocks they want to get rid of. This causes downward pressure on the markets due to increased selling.
Another explanation is one of the most famous stock market sayings,The assumption behind this is that stock markets generate better returns between November and April than between May and October.
