While it may seem nonsensical and somewhat bizarre, next month will likely see stocks fall with a serious correlation to the month listed on the calendar. The so-called “September Effect” has seen the Dow Jones Industrial Average (DJIA) average decline by 0.8% since 1950, per Investopedia. The S&P 500, meanwhile, has averaged a 0.5% drop. Even more intriguing, it’s a global phenomenon, suggesting a human factor that’s hard to pick apart. Investors looking to make moves in September may want to look at their options – like active investing.
See more: This Active ETF May Be the Standout Option for Rate Cuts
While the Effect has, to some degree, weakened in the last 25 years, it remains a consistent market anomaly. What deeper trend may be driving that selling instinct remains unknown. It could owe, for example, to the heady optimism of Summer yielding to less sunlight and a “nesting” mentality, but any such suggestion would rely more on pop psychology than investing.
The September Effect Next Month
Observant investors might point to rate cuts next month as one countervailing factor for a traditionally dreary September for markets. Of course, should cuts be priced in, with other factors like a potential AI bubble still lingering, a September effect hit could still be in the cards. That’s where active investing can play a role.
Active strategies and active managers can eschew firms most impacted by a September effect dip. Active strategies frequently lean on fundamental research, getting a deeper understanding of investing opportunities on a firm-by-firm basis. What’s more, active strategies can adapt more quickly than index strategies, allowing them to swerve a sector if it has a particularly tough month or quarter.
While the September effect may continue to dissipate this year, its persistence over decades bears mentioning. Many investors may already be considering active investing, and the start of Fall could be the opportunity to turn over that new leaf.
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