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Why September, on average, is the worst month for the stock market


The month of September has been, on average, the worst month for the stock market going back more than a century. And September 2023 appears to be no exception. But why? Jeff Guo from our Planet Money podcast recently tried to get to the bottom of this mystery.

JEFF GUO, BYLINE: It's called the September Effect. And someone who knows more about this than maybe anyone is Lily Fang. She's professor of finance at the business school INSEAD in France.

OK. Can I just ask you, do you remember?

LILY FANG: Remember what?

GUO: The 21st night of September.


GUO: (Singing) Ba-dee-ya, dancin' in September.

You know what I'm talking about?

FANG: Oh, yes. Yes. I didn't link it to the research. But, yes, I know that song.

GUO: Just like everybody on Wall Street knows that September is not such a good month for stocks. People have been talking about the September Effect for decades.

FANG: So it really stands out. It's just like, statistically, it cannot be a fluke.

GUO: Several years ago, Lily set out to investigate what causes this September slump in the stock market. She had a hunch that it had to do with how information, how news affects the stock market. She quickly zeroed in on two clues, two interesting facts that she knew about Wall Street. Fact No. 1, Lily says stock prices actually respond more quickly to good news than to bad news. That's because when a company releases good news - right? - everybody can just buy the stock, and the stock price goes up right away. But when bad news happens to a company, only the people who currently have their hands on some of that company's stock can sell it.

FANG: So bad news, you have just a smaller market for that information to get absorbed. And that's why, generally speaking, negative news travels more slowly.

GUO: And fact No. 2, another thing that Lily knew about Wall Street was...

FANG: We all know Wall Street people - right? - they go to the Hamptons. They are - wherever - they are away in the summer. And so, therefore, you get even less attention. So the ability to take advantage of negative news is even less.

GUO: That is Lily's theory, that it has to do with vacation. Lily says over the summer, maybe a lot of traders aren't paying that much attention to the stock market, especially not the bad news. But when everybody gets back to work in September, all that lingering bad news from the summer really starts to register. That is what causes stocks to go down. And Lily found a lot of evidence that supports this theory. For instance, she was able to show that, indeed, the U.S. stock market reacts much more slowly to bad news, particularly when it's over the summer. But she found that this pattern went way beyond just the U.S. stock market.

FANG: Yes, indeed. I think September Effect, it's probably part of a broader phenomenon, you know?

GUO: This is global.

FANG: Right. Yes. Yes.

GUO: Lily says in places like China and Singapore and Hong Kong, stocks tend to go down right after their major holiday, which is Lunar New Year. But she says this September Effect, this holiday effect, whatever you want to call it, it seems to be fading away in the age of cellphones and the internet. These days, you also have all these algorithms making trades. And the computers, they never sleep or take vacation. That said, the effect doesn't seem to be gone entirely. It looks like this September, yet again, stocks will close lower at the end of the month than at the beginning.

Jeff Guo, NPR News.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

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Jeff Guo
Jeff Guo (he/him) is a co-host and reporter for Planet Money, NPR's award-winning podcast that finds creative, entertaining ways to make sense of the complicated forces that move our economy. He joined the team in 2022.