We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
September Effect and ETFs: What Lies Ahead for Investors?
Read MoreHide Full Article
Despite witnessing volatility, August proved positive for the S&P 500 index, where the broad market index gained 3.6%. However, the potential uncertainty driven by “the September effect” is a concerning factor.
A classic calendar-based market anomaly, the September effect, refers to the historically weaker market returns witnessed in the month, as quoted on Investopedia. Over the past century, September has proven to be the worst month for Wall Street on average.
Traditionally, U.S. equities have delivered strong returns in August, whereas September stands out as the only month that posts negative average returns, according to Reuters.
Data Behind the Anomaly
Per Yahoo Finance, in September alone, the S&P 500 index has averaged a decline of approximately 4.2% over the past five years and more than 2% over the last 10 years.
Taking a broader historical perspective, Investopedia states that the S&P 500 index has, on average, declined approximately 1% in September over the last century. However, since 1928, stocks have declined in September 55% of the time, marking the likelihood of a negative return for the month just slightly above 50/50.
Why Markets Struggle in September
Per Investopedia, the September decline is partly caused by investors seeking to lock in profits and tax losses before the year-end and partly by investors selling stocks to cover back-to-school expenses.
Institutional investors looking to liquidate their holdings for tax loss harvesting at the end of the quarter also contribute to the decline. Additionally, another theory suggests that because investors anticipate the September Effect, market psychology kicks in and sentiment turns negative in line with those expectations.
However, beyond these theoretical headwinds, the existing sources of market volatility strengthen the case for the market anomaly. Concerns about the Fed’s independence and the legal uncertainty surrounding the Trump administration’s tariffs contribute to the increasingly volatile macroeconomic environment.
Additionally, continued geopolitical and economic instability and persistent inflation concerns have continued to make investors nervous.
How Should Investors Respond to the Market Anomaly?
Preserving capital and cushioning volatility is key for investors looking to navigate a volatile period. Investors should adopt a defensive approach as it's better to be cautious than unprepared.
With ETFs offering the additional benefit of instant diversification and tax efficiency, investors can use them to increase exposure to defensive funds. Investing in these sectors provides dual benefits, protecting portfolios during market downturns and offering gains when the market trends upward.
ETFs to Consider
Below, we highlight a few areas in which investors can increase their exposure.
Consumer Staple ETFs
Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Investors can put more money in consumer staples funds to safeguard themselves from potential market downturns (Read: Here's Why It's Time to Revisit Consumer Staples ETFs).
The S&P 500 Consumer Staples Index has gained 4.01% year to date. Investors can consider Consumer Staples Select Sector SPDR Fund (XLP - Free Report) , Vanguard Consumer StaplesETF (VDC - Free Report) and iShares U.S. Consumer Staples ETF (IYK - Free Report) .
Gold ETFs
Investors can also consider funds such as SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) and SPDRGold MiniShares Trust (GLDM - Free Report) , increasing their exposure to the yellow metal. Across extended investment periods, gold preserves its purchasing power, outpacing inflation.
Additionally, gold remains a secure choice amid economic and geopolitical instability.
Dividend ETFs
Dividend-paying securities serve as primary sources of reliable income for investors, particularly during periods of equity market volatility. These stocks offer dual advantages of safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Companies offering dividends often act as a hedge against economic uncertainty.
Investors can consider Vanguard Dividend Appreciation ETF (VIG - Free Report) , Schwab US Dividend Equity ETF (SCHD - Free Report) and Vanguard High Dividend Yield Index ETF (VYM - Free Report) , which have dividend yields of 1.68%, 3.68% and 2.54%, respectively.
More Defensive Options
Investors can consider quality and value funds if they want to increase their exposure to more defensive funds. Funds like Vanguard Value ETF (VTV - Free Report) and iShares MSCI USA Quality Factor ETF (QUAL - Free Report) are good options.
Investors can also increase exposure to volatility ETFs like iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) . These funds have delivered short-term gains during periods of market chaos and could climb further if volatility persists.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Shutterstock
September Effect and ETFs: What Lies Ahead for Investors?
Despite witnessing volatility, August proved positive for the S&P 500 index, where the broad market index gained 3.6%. However, the potential uncertainty driven by “the September effect” is a concerning factor.
A classic calendar-based market anomaly, the September effect, refers to the historically weaker market returns witnessed in the month, as quoted on Investopedia. Over the past century, September has proven to be the worst month for Wall Street on average.
Traditionally, U.S. equities have delivered strong returns in August, whereas September stands out as the only month that posts negative average returns, according to Reuters.
Data Behind the Anomaly
Per Yahoo Finance, in September alone, the S&P 500 index has averaged a decline of approximately 4.2% over the past five years and more than 2% over the last 10 years.
Taking a broader historical perspective, Investopedia states that the S&P 500 index has, on average, declined approximately 1% in September over the last century. However, since 1928, stocks have declined in September 55% of the time, marking the likelihood of a negative return for the month just slightly above 50/50.
Why Markets Struggle in September
Per Investopedia, the September decline is partly caused by investors seeking to lock in profits and tax losses before the year-end and partly by investors selling stocks to cover back-to-school expenses.
Institutional investors looking to liquidate their holdings for tax loss harvesting at the end of the quarter also contribute to the decline. Additionally, another theory suggests that because investors anticipate the September Effect, market psychology kicks in and sentiment turns negative in line with those expectations.
However, beyond these theoretical headwinds, the existing sources of market volatility strengthen the case for the market anomaly. Concerns about the Fed’s independence and the legal uncertainty surrounding the Trump administration’s tariffs contribute to the increasingly volatile macroeconomic environment.
Additionally, continued geopolitical and economic instability and persistent inflation concerns have continued to make investors nervous.
How Should Investors Respond to the Market Anomaly?
Preserving capital and cushioning volatility is key for investors looking to navigate a volatile period. Investors should adopt a defensive approach as it's better to be cautious than unprepared.
With ETFs offering the additional benefit of instant diversification and tax efficiency, investors can use them to increase exposure to defensive funds. Investing in these sectors provides dual benefits, protecting portfolios during market downturns and offering gains when the market trends upward.
ETFs to Consider
Below, we highlight a few areas in which investors can increase their exposure.
Consumer Staple ETFs
Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Investors can put more money in consumer staples funds to safeguard themselves from potential market downturns (Read: Here's Why It's Time to Revisit Consumer Staples ETFs).
The S&P 500 Consumer Staples Index has gained 4.01% year to date. Investors can consider Consumer Staples Select Sector SPDR Fund (XLP - Free Report) , Vanguard Consumer Staples ETF (VDC - Free Report) and iShares U.S. Consumer Staples ETF (IYK - Free Report) .
Gold ETFs
Investors can also consider funds such as SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) and SPDR Gold MiniShares Trust (GLDM - Free Report) , increasing their exposure to the yellow metal. Across extended investment periods, gold preserves its purchasing power, outpacing inflation.
Additionally, gold remains a secure choice amid economic and geopolitical instability.
Dividend ETFs
Dividend-paying securities serve as primary sources of reliable income for investors, particularly during periods of equity market volatility. These stocks offer dual advantages of safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Companies offering dividends often act as a hedge against economic uncertainty.
Investors can consider Vanguard Dividend Appreciation ETF (VIG - Free Report) , Schwab US Dividend Equity ETF (SCHD - Free Report) and Vanguard High Dividend Yield Index ETF (VYM - Free Report) , which have dividend yields of 1.68%, 3.68% and 2.54%, respectively.
More Defensive Options
Investors can consider quality and value funds if they want to increase their exposure to more defensive funds. Funds like Vanguard Value ETF (VTV - Free Report) and iShares MSCI USA Quality Factor ETF (QUAL - Free Report) are good options.
Investors can also increase exposure to volatility ETFs like iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) . These funds have delivered short-term gains during periods of market chaos and could climb further if volatility persists.