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When it comes to the market, some months and seasons get a bad rap. There’s the January Effect, the Santa Claus Rally, and Sell in May and Go Away, to name a few. This month has the worst reputation of all—not only in the United States but throughout global markets.

The September Effect refers to the belief that historically, September is the most disappointing month of the year for the market based on trends in historical data. Since 1950, the Dow Jones Industrial Average (DJIA) has declined 0.8% on average in the month of September and the S&P 500 has experienced a similar struggle, losing an average of 0.5% over the same time period.

Before you make any rash decisions, there are a few things to consider. For starters, September’s “effect” has weakened considerably over time. Like most anomalies, as more investors become aware of it, the likelier they are to try to avoid it. For example, investors could sell in August to try to counteract the September Effect.

It’s also worth noting that in periods similar to the last five months wherein the S&P 500 returned more than 25%, the following five months experienced solid additional market gains seven out of eight times.

A Lesson from 2020

If 2020 has taught us anything so far, it’s that the future won’t always look like the past. Over the last six months in a global pandemic, we’ve experienced:

  • A recession unlike anything most of us have ever seen in our lifetime
  • The swiftest and shortest bear market of all time, followed by the quickest bull market on record
  • The best five-month gain for the S&P 500 since 1938

Sell In May Go Away?

Anyone who followed the adage “Sell in May and Go Away” missed out on a significant chunk of market returns that materialized after the market bottomed in late March. These were critical to investors who wanted to get themselves out of the hole caused by the COVID-19 crash earlier in the year.

There’s another wrinkle related to the September Effect – it seems to go away when you take year-to-date market performance into account. According to research from Bespoke Investment Group, since 1983 the S&P 500 gained on average 0.41% when the market is up less than 10% year-to-date, and up 0.34% in the same month when the markets increase more than 10% year-to-date (Returns through September 29, 2019). At the end of August 2020, the S&P 500 was up just a hair under 10% for the year.

Looking for Trouble

When you scour the data hard enough, you’re bound to come across some irregularities. And if you dig even further, you can often find supporting evidence for the counterargument. More often than not, correlation will not equal causation and the results will be spurious at best.

One Wall Street adage that most often holds true is that “time IN the market is greater than timing the market.” And that one, my friends, is timeless.

Philip R. Huber Philip R. Huber Chief Investment Officer

Phil has been involved in the financial services industry since 2007. He is a member of the CFA Society of Chicago and is regularly featured in notable media outlets. In 2018 and 2019 Phil was named one of Investopedia’s Top Financial Advisors.

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