The S&P 500 hasn’t had a winning September in five years.
September is typically an awful month for the stock market.
In fact, historically, it’s the worst month of the year due to what is sometimes known as the September effect. From 1928 to 2023, the S&P 500 has averaged a decline during September — even though the broad-market index has delivered an average annual return of 9%, meaning its return excluding September is even stronger.
Image source: Getty Images.
There’s no clear reason for the usual sell-off. It could be related to traders adjusting positions after summer vacations, profit-taking ahead of a new school year, or some other under-the-radar seasonal factor.
However, not every September is a downer for investors. This year looks set to break the historical pattern, as the S&P 500 just set another all-time high.
Through Sept. 25, the S&P 500 was up 1.4% for September so far. In fact, all three major indexes are up for the month, as the chart below shows.
Stocks have been helped by the Fed’s 50-basis-point cut in interest rates, while a broader debate plays out over the strength of artificial intelligence (AI) stocks. Notably, the Nasdaq still hasn’t returned to its record from July, but it is approaching it.
The S&P 500 hasn’t posted a gain in September since 2019, even though the index was in the middle of rallies in three of those four years (2020, 2021, and 2023 all saw the index deliver strong returns). In some years, that performance has been particularly poor. Last year, for example, the broad-market index fell 5% in September, its worst month of the year. The Fed scaled back its earlier forecast for interest rate cuts as inflation remained sticky.
In 2022, it fell 9%, and it gave up 4% in both 2020 and 2021.
Considering that pattern, the gains this September seem significant.
What history says about September gains
Since 2009, the S&P 500 has gained in September seven times. On five of those occasions, the S&P 500 continued to rise in the fourth quarter, as the table below shows.
| Year | S&P 500 September performance | S&P 500 Q4 performance |
|---|---|---|
| 2009 | 0.9% | 5.4% |
| 2010 | 8.8% | 10.2% |
| 2012 | 2.4% | -1% |
| 2013 | 3% | 9.9% |
| 2017 | 1.9% | 6.1% |
| 2018 | 0.4% | -14% |
| 2019 | 1.7% | 8.5% |
| 2024 | ??? | ??? |
| Average | 2.7% | 3.3% |
Source: YCharts, data compiled by author.
As you can see, there was only one year when the S&P 500 severely underperformed after gaining in September. That was in 2018. That year, Fed rate hikes led to rising bond yields, weighing on stock valuations, and fears of a trade war with China also spread.
However, the overall trend seems to be that gains in September tend to lead to solid gains in the fourth quarter. In five of the above seven years, the S&P 500 gained more than 5%, or an annualized gain of more than 20%.
Will the S&P 500 go up in Q4?
There are a number of factors that will influence the S&P 500’s performance in Q4, including corporate earnings, Fed rate cuts, the presidential election, holiday spending, and other developments and unknown factors.
It’s impossible to know for sure how the S&P 500 will do in Q4, but the momentum in the index is promising, especially during a normally weak month for stocks.
Ultimately, investors are better off focusing on the long term. Remember that the S&P 500 has grown by a compound annual rate of 9% with dividends reinvested over its history.
While there’s no guarantee that the index will gain in Q4, the dynamism of the American economy should ensure that the S&P 500 remains a winning ticket for investors over the long haul.
