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September Effect: Why the Market Went Down Last Month?

2 Min Read
Jonathan Henault Oct 05, 2021

Among all the craziest trivia fun facts we happened to know about trading, the seasonal depression of the stock market is one of the most impressive. 

According to historical data, both Dow Jones and S&P 500 are going slightly down basically every year since 1950, and the same thing for the NASDAQ since its creation in 1971. 

This market anomaly, also going by the name of September Effect, is a curious phenomenon affecting on average all the markets in the financial world. Analysis of the DJIA (Dow Jones Industrial Average) shows that over the last 70 years, September is the only calendar month with a negative return, with an average decline of 0.8% – and 0.5% of average decline for the S&P 500. 

September Effect

So, is it because of the weather changes or just an inexplicable coincidence? Although most explanations of the September Effect are all but theoretical (and sometimes a bit wacky), some tracks deserve to be followed: 

  • # individual investors liquidate stocks going into September to offset schooling costs for children.
  • # most mutual funds cash in their holdings to harvest tax losses.
  • # investors are usually changing their portfolios at the end of summer to cash in.

Or quite simply, summer months usually have lightly traded volumes because investors are on vacation and refrain to trade too much. They exit positions they had been planning on selling. When this occurs, the market experiences increased selling pressure and, thus, an overall decline.

Now that you know, you won’t be surprised if the market went a bit down these days… So don’t panic, download AdelTrade app and start to learn how to trade by entering one of our trading competitions coming soon! 

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