The “September Swoon” is a seasonal trend in the
stock market and one that has been well documented
by researchers and the press. The fact is, September
has historically been the worst month on the calendar
Since 1950, the month of September has seen an
average decline in the Dow Jones Industrial Average
of 0.8%, while the S&P 500 has averaged a 0.5%
decline during September.
NASDAQ has also seen an average decline of 0.5%
during September since 1971 (when NASDAQ was
Seasonality is based only on the analysis of years of
historical data. A seasonal trend is discovered if a
pattern emerges in this analysis, in terms of average
performance in a certain month. It’s important to
remember, however, that due to financial,
psychological, and political factors, stock market
behavior can run completely contrary to the seasonal
trend in any given year.
Because the stock market in September has shown
markedly different behavior, on average, for 86 years,
these results are not coincidental. There is a genuine
Possible reasons for the September Swoon
So, why does the stock market generally drop in
September? What causes the September Swoon?
Economists and financial analysts have studied this
topic, but no one has reached a definitive conclusion.
Here are some of the hypotheses:
Summer vacation: This hypothesis holds that traders
and investors are more likely to sell their stocks after
returning from their August vacations or long, Labor
Day weekends. Trading volume tends to decline
during the summer, and then investors – especially
professional investors – get back to trading from their
Third quarter: Many mutual funds have fiscal years
ending in the fall, provoking them to sell their losing
stocks for “window-dressing” purposes. This term
describes the process of a portfolio manager making
cosmetic changes at the end of the quarter because
they list their holdings at the beginning of a new
quarter – their list of holdings looks better without the
poor performing stocks.
Tax losses: Investors begin to sell declining stocks to
harvest their tax losses, getting ahead of other
investors who sell at year-end. This hypothesis also
draws support from the observed “January effect,”
where investors buy back the stocks that they sold for
Tuition time: With this hypothesis, many investors
must sell large amounts of their stock holdings to pay
their children’s tuition bills at colleges, universities,
and prep schools. And for most, the school year
begins roughly in September.
Seasonal Affective Disorder (SAD): A university
study suggested that the sharp drop in the amount of
daylight in New York City in September might trigger
Seasonal Affective Disorder (SAD), a type of
depression related to changes in seasons. As a
result, according to this hypothesis, some investors
become more risk-averse, so they sell losing stocks,
unwilling to wait for things to get better.
Cultural trends (summer vacations, back-to-school in
the fall), regulations and taxes (third quarter, tax
losses), and even psychological effects of weather
(seasonal affective disorder) have been offered as
explanations for this strange September market trend.
Unfortunately, none of these explanations has been
proven, frustrating researchers who seek reasons for
patterns in the stock market. Maybe each of these
factors contribute to the trend. No one really knows
the reason for the September Swoon.
Knowing the reason
If someone discovered a convincing explanation for
the September Swoon, would this help investors?
Probably not. Savvy investors might jump the gun,
selling stocks in August, and then others might try to
beat them by selling in July. Of course, the seasonal
September pattern would then disappear, replaced by
some other trend.
But even if there is no proven reason for this
September Swoon, shouldn’t an investor make
changes, anyway? Because of this seasonal trend
toward declining stock values in September, traders
and investors might be inclined to alter their portfolios.
However, the September Swoon is based on an
average, the average performance of the stock
market since before the Great Depression, divided by
While September is, on average, the worst month for
stocks, this doesn’t mean that each individual
September is bad.
In fact, there are two things investors should know:
First, since 1950, the month of September has
delivered 31 up-years and 38 down-years and
Next, the last two Septembers (2018 and
2017) saw the markets return positive
No one knows the definite reason for this so-called
Swoon, and trying to guess which year will be bad is a
Seasonality vs. market timing
Remember, there is a difference between market
timing and seasonality. Seasonal trends reflect how
the market will behave in particular months as part of
a long-term trend. Market timing is based on short term
price patterns. Timing the market perfectly is, of
course, impossible. As discussed above, seasonal
trends are grounded in the analysis of years of data,
but not every year is identical.
It is important to remember that investors who trade
frequently spend more time and pay more
commissions, but they do not necessarily make more
money. The buy-and-hold strategy might be best for
you and a knowledgeable financial advisor is of
Important Disclosure Information
The article above was provided to Synovus by eMoney Advisor, LLC, and is used here with permission from eMoney or a third party content provider. eMoney does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. This information was provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
You are about to leave the Synovus web site for a third-party site
Third-party sites aren't under our control, and we are not responsible for any of the content or additional links they contain. We don't endorse to guarantee the goods or information provided by third-party sites, and we're not responsible for any failures or inaccuracies. Third-party sites may contain less security and may have different privacy policies from ours.