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Stocks Dip To Start September, The Market's Traditional Worst Month

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With the Dow, S&P 500, and Nasdaq indices all in the red through morning trading on Tuesday, it’s clearly not been a hot start to September, which is historically the stock market’s worst month of the year.

As investors returned from the Labor Day holiday this week, several major stories appeared to ratchet up fear and hesitation. For one, investors appear less-than-impressed with United Technologies’ (UTX - Free Report) $23 billion deal to acquire Rockwell Collins (COL - Free Report) . Shares of UTX, a component of the Dow, were down more than 4.7% through morning trading hours.

On top this, broader concerns about a handful of domestic and international political issues continue to loom over investors’ heads.

The threat of a nuclear conflict with North Korea has reached new highs over the past few weeks, and as result, President Trump looks ready to initiate a trade war with China. Here at home, the debt ceiling drama is far from resolved, and Hurricane Irma could be poised to add to the devastation in the Gulf region.

“It’s probably a safe bet that volatility will pick up in September,” wrote Hinsdale Associates investments director William Lynch.

September is widely accepted as the worst month for stock market performance. Since 1950, the Dow has averaged a 1.1% decline during the month, while the S&P 500 has averaged a 0.7% drop in September. The Nasdaq was first established in 1971 and has dropped an average of 1% during September since its founding.

There are many theories as to why September is such a difficult month for stocks, although we do lack one universally agreed upon reason.

Some think it’s fair to blame the dip on the unofficial end of summer. The summer months normally mark the lightest trading volumes in the calendar year—a fact that most people assume is related to investors taking vacation time.

Also, many major mutual funds end their fiscal years in September. Many mutual fund managers will shed their losing positions as their fiscal years conclude, which could also contribute to a weaker month overall.

This year, these traditional factors will be in play yet again, but it could be a caution-inducing combination of other external elements that results in new volatility.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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