#1 Investment Pill: The Curious "September Effect"

As summer slowly gives way to autumn, the financial world often witnesses a phenomenon known as the "September effect." This intriguing trend has garnered attention over the years due to its potential impact on the markets.

Today, we'll unpack the September effect. For long time an unnoticed effect which factors had not been that contribute to its reputation and why investors keep a keen eye on this month.

On Figure 1 from the book Stock for the Long Run of Jeremy J. Siegel, we can see the impact of September returns on Dow Jones Indutrial Index. However, this effect is extrapolable to the whole world.

September is the only month of the year that has negative returns in the value-weighted (or equal-weighted) world index. Some of the factors which can explain this behaviour of the market are:

1. Seasonal Trends

• Vacation Period: During the summer months, many investors take a break, leading to reduced trading activity. September marks their return, often accompanied by portfolio reassessments and heightened market volatility.

• Back-to-School Effect: In the U.S., September signifies the end of summer vacations and the start of the school year. This transition can influence consumer spending patterns and investor sentiment, particularly in sectors related to education and consumer goods. However, market decline has also been observed on Australia or New Zealand where the spring starts.

2. Economic and Corporate Events

• Economic Data Releases: Regular economic reports, such as employment figures and inflation data, are released in September. Surprises or disappointments in these reports can create market uncertainty.

• Corporate Earnings: Many companies release their quarterly earnings reports in September, a significant driver of stock prices and investor sentiment.

• Policy Changes: Government policies, such as changes in interest rates or tax laws, often surface in September, impacting the financial landscape.

3. Historical Events

• Black Monday (1987): The infamous 1987 stock market crash, dubbed "Black Monday," occurred in October. However, its looming specter cast a shadow over markets in the preceding September.

• Financial Crises: Other significant financial crises, like the 2008 financial meltdown and the 1929 stock market crash, have also unfolded in or around September, contributing to the month's perceived market risk.

4. Tax Planning

• Tax-Loss Harvesting: As the fiscal year-end approaches, many investors engage in tax planning, often peaking in September. Tax-loss harvesting, which involves selling underperforming assets to offset capital gains, can influence stock prices.

It's crucial to note that while these factors can contribute to the September effect, they don't guarantee poor market performance in September every year. The financial markets are influenced by a complex web of economic, geopolitical, and psychological factors. Remember, past trends don't predict future outcomes.

After today’s brief newsletter, I am preparing the first newsletter of Novo Nordisk’s trilogy. Novo Nordisk is one of the top quality European companies and also one of my portfolio favorites.

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