Is September Really The Worst Month For Trading?
Trading is a funny old game. You’ll often hear people say that there are high and low times to trade and sayings like, “Sell in May and go away”. You may also hear them say that September is a terrible time to trade. But why is that? Today, we’ll unpick the September Effect before giving you an overview of the top tradeable events this week.
The September Effect
Okay, so this is a weird one. No one really knows why, but the stock market typically performs the worst during the month of September. Stock analysts will tell you that September is the month when the stock market’s three leading indexes usually do their worst.
Since 1950, the Dow Jones Industrial Average (DJIA) has seen an average decline of 0.8% in September. Likewise, the S&P 500 has suffered a 0.5% decline on average during the ninth month of the year. Lastly, since 1971, the Nasdaq’s composite index has fallen an average of 0.5% during September trading.
Those numbers really help to show how bizarre this historical fact really is. Because of this correlation, the month of September is now notorious as a non-trading month, with some dubbing this the “September Effect.”
What’s up with September?
It’s worth noting that this trading anomaly isn’t a purely US-only phenomenon, it affects markets all over the world. This has led many analysts to attribute the negative effect of September on the markets as seasonal behavioural bias, with investors changing their portfolios at the end of summer to cash in.
Another theory highlights what we mentioned in the opening paragraph … that many investors take a holiday over the summer period and, as such, this time has much lighter trading volumes. As those investors start to swap the beach for their desk, they begin exiting positions they’d planned on selling. This leads to increased selling pressure and a general slump.
Case closed? Maybe not…
How to avoid the September Effect
One great way of avoiding this market anomaly is extending your holiday! No, seriously. Traders need their downtime. Planning regular (as well as prolonged) breaks should be a vital part of any trading strategy. You need to ensure you switch off and fully refresh yourself for the trading battles that are to come.
If you’ve had all the deck-chair sitting, swimming pool cannon-balling action you can take and you’re itching to get back to trading, why not use this time to research some new instruments? You could even dig a bit deeper into the September Effect. Who knows, you might even figure the thing out and end up writing the next New York Times Bestseller!
What’s on the trading agenda this week?
Here’s everything you need to keep track of this week.
Monday
● CNY — Inflation Rate YoY (JUL)
Tuesday
● EUR — ZEW Economic Sentiment Index (AUG)
Wednesday
● AUD — Westpac Consumer Confidence Index (AUG)
● EUR — Inflation Rate YoY Final (JUL)
● CNY — New Yuan Loans (JUL)
● USD — Core Inflation Rate YoY (JUL); Inflation Rate YoY (JUL)
Thursday
● GBP — GDP 3-Month Avg (JUN); GDP Growth Rate YoY Prel (Q2); GDP YoY (JUN)
Friday
● USD — Michigan Consumer Sentiment Prel (AUG)
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Speak soon!
The Contentworks team
