The September Scaries: Myth, Data, and Market Reality
Seasonality in the stock market refers to movements or trends that are said to repeat on an annual basis. One example of this is the September Sell-Off, the belief that September is historically the worst month for stocks. Rather sensationally, ABC News went as far as pointing out that we may currently be seeing this September effect, as the ASX 200 had fallen every day this month – though we were only three days into the month. While there may be some data backing the occurrence of patterns, the belief that these events will unfold in the same way every year is fundamentally naive and may put investors at a disadvantage if they hold these seasonal trends at face value. So, is there any substance to the September sell-off, and should we avoid trading in September?
The Data
Firstly, let’s begin by looking at the data to see if there’s any basis to the theory of the September sell-off. The charts below look at the average monthly return for the ASX 200 (XJO) and the S&P 500 (SPX) for the last 30 years. From this data, we can see that September does in fact average out as the worst month on both indexes across this time period. Therefore, the data supports the theory; however, the average returns for May on the XJO and August on the SPX are not significantly different.
Now let’s drill down a little further and see the 25 individual worst months for returns on the XJO and SPX. I’ve highlighted September in red. This chart shows us that the worst months occurring in this period were not themselves Septembers. Instead of seasonality, these worst months occur around events of extreme market upheaval, for example, the beginning of the Covid pandemic (March 2020), the middle of the GFC (October 2008), or the 1998 Bear Market (August 1998).
Although the very worst months were not in September, it does appear to be overrepresented in the sample, accounting for 5 out of 25 of the worst months during this period. If there was no bias towards September being on average worse, we would expect it to show only 2 or 3 out of 25 occurrences. The September Sell-Off theory therefore does have some backing behind it.
Why seasonality occur?
Having established that September does appear weaker on average, the natural next question is, why would it historically be a weaker month? There are a few theories. Firstly, in the US, there is a clear aspect of pure seasonality involved. Some speculate that many investors return from summer holidays in September and begin to rebalance or sell off their positions. September also marks the end of Q3 for many, which often involves companies issuing earnings revisions or guidance updates as they near the end of the full year. Another reason could be central bank activity, including key Federal Reserve meetings, which can raise volatility around interest rate speculation. Another reason may be the fear of the September sell-off itself, which creates a self-fulfilling prophecy: investors sell equities to avoid a negative month, inadvertently causing negative price pressure.
If September is, on average, the worst month to trade, should traders avoid making trades during this month? While September statistically does appear to have worse returns than other months, this is only really the case on average. From 1995 to 2025, 51.6% of Septembers were negative on the ASX 200, while 45.2% of Septembers were negative on the S&P 500. That means for the S&P 500, the Septembers are actually more likely to deliver a positive return than not. The other side of this argument is that we’re only looking at the high-level indexes. As we discussed a few weeks ago, the big-name indexes don’t give an accurate depiction of the entire market landscape, and there may well still be stocks overperforming underneath. Thus, closing out strong positions based on overarching September averages would likely harm returns. It is more important to focus on disciplined execution than trying to time the months.
While September does appear to be the worst-performing month on average, beneath the surface the picture is not so clear, and September is by no means a losing month overall. Awareness of seasonality should inform, not dictate decision-making, and traders are better off focusing on strategy and risk management than searching for seasonal patterns. You can view our member portfolios and returns over September on our 14 day free trial.
