September has produced the worst average returns of any month for the Dow Jones Industrial Average since the index's creation in the late 1890s. Researchers link the pattern to a seasonal mood effect tied to the end of summer, though the Dow has still risen in each of the past two Septembers.
Stocks have ended higher in only 43% of Septembers since the Dow Jones Industrial Average was created in the late 1890s, versus 60% for the other 11 months of the year. The Dow's average September return has been minus 1.1%, compared with an average gain of 0.8% for the other 11 months combined, a gap statisticians consider significant at the 95% confidence level.
A seasonal mood effect behind the pattern
MarketWatch columnist Mark Hulbert points to seasonal affective disorder (SAD) as a possible explanation. A study titled "Seasonal Asset Allocation: Evidence from Mutual Fund Flows" found a strong inverse correlation between the stock market and SAD. Raymond Lam, a professor and leadership chair in depression research at the University of British Columbia, has found that no other month-to-month change in SAD is as large as the shift from August to September.
That shift, sometimes dubbed the "pumpkin-spice latte effect," coincides with retail cues that summer is ending. Dunkin' is launching its pumpkin-spice-latte menu next week, with Starbucks following the week after. Target and Home Depot formally launched their Halloween product lines in mid-July.
Probabilities, not certainties
The pattern is not a guarantee. A 40% probability of a higher September is not zero, and the Dow rose in each of the last two Septembers. But investing is a matter of probabilities, and September carries the lowest probability of a gain of any month of the year.
Source: MarketWatch
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