Why Stocks Fall in September

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Thanks to two major crashes, October usually is pegged as the worst month for stocks – but that's not the case.

It's actually the current month that has delivered the worst performance, leading to the question: Why do stocks fall in September?

Going back to 1929, the S&P 500 averages a 1.1% decline in September. It's the only month to drop more than 50% of the time, according to Standard & Poor's research. All other months have positive returns 60% of the time.

Stock Market in September

September performance for the Dow Jones Industrial Average is also dismal.

The Dow has lost an average 1.09% in September since the index started in 1896. That compares to the 0.75% gain in all other months.

So what is behind September's bad showing for the stock market?

Markets in September

Why September Is Bad for Stocks

Here are five reasons why stocks tend to fall in September:

  • In September, moods change as people again focus on portfolios instead of vacations. Investors are more inclined than in the previous summer months to take action and dump losers. "Psychologically, when the leaves turn in the fall, vacations end and the days are getting shorter, there is this kind of negative vibe out there that tends to accentuate any negative events," Dan Seiver, a finance professor at San Diego University, explained to the Associated Press.
  • Tax refunds and bonuses are received in the first few months and often go into IRA accounts or toward maxing 401(k) contributions, so less capital flows into investments in the second half of the year.
  • Mutual funds frequently do some "window dressing." Scores of funds end their fiscal year in September, and they sell their losers and buy the best-performing stocks ahead of presenting their year-end portfolios and fund performances to shareholders.
  • Investors often do a reality check in September. Record stock market rallies have pushed the Dow up some 14.55%, the S&P 500 up 16.64%, and the Nasdaq up 23.74% year to date. Investors want to take a piece of the robust gains before volatility hits.

Will This September Be Bad for Stocks?

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