The month of September is typically the worst month of the year for the stock market. Sure, the market is down already as we’ve seen during its recent 800-point drop. However, September is usually when the three leading indexes – Dow Jones, S&P 500 and Nasdaq all turn in the poorest performance. It’s an annual trend called The September Effect.
Some analysts consider the cause of September Effect as unrelated to market events or news items. The main factor in play is called “Seasonal behavior bias.” Here’s what it’s made of:
- Investors cashing in from changing in their portfolios.
- Light trading volume due to summer vacations.
- More selling pressure when vacationers return and start exiting positions they hold.
In addition, you have mutual fund managers turning over stock portfolios and selling losing positions which is a reason by the way to avoid mutual funds, because you, the consumer foots the bill, usually with a big “hidden” fee.
What to do? The stock market is bruised and expected to stay that way for a while or at least until the US/China trade war is over. For those near or already in retirement, I suggest getting out of the stock market now, especially with the possible September Effect just around the corner.
As always, consult a retirement phase expert before making any decisions.