Stocks Likely to Avoid the September Effect as AI Hype Continues

In investing, considering all available factors can be the difference between a loss and a profit. The September Effect is one of those factors that sits in the background noise of market signals. Sometimes, perception plays a role in market dynamics as expectations feed back into investor action. Whether real or not, how does the “month to avoid stock” play out this time?

What is the September Effect?

In the United States, the fiscal year ends on September 30. This is the time for preparing financial statements across the federal government and many organizations. In such a period, investors restructure assets to lock in tax losses and profits, which may lead to stock liquidations. It would then be no accident that this period coincides with the perceived September effect, later followed by the January effect.

As market anomalies, both effects manifest as downturns without apparent cause that can be easily quantified. Being neither predictive nor consistent, the September Effect is another vague signal that asset underperformance could be expected.

Jeremy Siegel of the Wharton School of Business Administration attempted to quantify the September Effect in the paper “September: A Month to Avoid Stocks”. The finance professor concluded that the Dow Jones industrial average dropped in 63 September's from 1890 to 1994, only to rise across 41 September's.

However, it cannot be conclusively stated that September is the worst-performing month. Moreover, in recent decades, the perceived effect is further waning in consistency. So much so that Siegel himself, in last Friday’s Behind the Markets podcast, is optimistic for this September.

Macro Factors that Defy September Expectations

Otherwise known as the “Wizard of Wharton,” the retired professor cited several factors for a bullish outlook. One of the indicators comes from resilient housing prices, which are certainly more resilient than expected.

Home Price Index-Monthly