Many investors shouldn't be concerned about the frequent decline of stocks in September.

• September is historically weak for U.S. stocks.
• However, long-term investors likely shouldn't sell out of the market.
• Nowadays, experts believe that the seasonal weakness is likely rooted in investor psychology rather than banking and farming practices before the early 1900s.

September historically hasn't been kind to stock investors.

According to Morningstar Direct, U.S. large-cap stocks have lost an average of 0.9% in September since 1926.

During that nearly century-long period, investors experienced an average loss only in September, while they saw a profit in all other months, according to Morningstar.

Although February had a 0.4% return, which is the second-lowest among the 12 months, it still outperforms September by 1.3 percentage points. July, on the other hand, had an average return of almost 2%.

The monthly weakness also holds true when looking just at more recent periods.

Since 2000, the stock index has lost an average of 1.7% in September, which is the worst monthly performance by more than a percentage point, according to FactSet.

The Federal Reserve's rate cut may not provide "immediate relief."

According to Abby Yoder, U.S. equity strategist at J.P Morgan Private Bank, the last two weeks of September are typically the weakest part of the month.

Yoder stated that starting next week, the seasonality would tend to become a little more negative.

Trying to time the market is a losing bet

Yoder advised investors not to sell their stocks prematurely.

Financial experts generally advise against attempting to time the market because predicting good and bad days is difficult.

According to a Wells Fargo analysis published earlier this year, the 10 best trading days by percentage gain for the S&P 500 over the past three decades all took place during recessions.

Since 1926, the average large-cap U.S. stock returns in September were positive for half the years.

If investors had not sold out of the market in September 2010, they would have earned a 9% return that month, which was the best performing month of the year, according to Morningstar.

""Stocks are volatile, according to Edward McQuarrie, a professor emeritus at Santa Clara University who studies historical investment returns," said McQuarrie."

Don't put faith in market maxims

Experts advised investors not to blindly accept market maxims as absolute truths.

The best rolling six-month period for stocks is from November to April.

"Fidelity Investments stated in April that history reveals that this trading theory contains errors. On average, stocks increase in value throughout the year. Consequently, it is not advisable to sell in May."

On average, the S&P 500 experienced a 1.1% increase from May to October and a 4.8% gain from November to April over the past six months, according to FactSet.

Historical reason for September weakness

Prior to the early 1900s, stocks typically performed poorly in September due to a historical reason, according to McQuarrie.

He mentioned the connection between 19th century agriculture, banking practices, and the limited availability of money.

New York City had become a dominant banking center, particularly after the Civil War. As a result, deposits from across the country flowed into New York banks, with farmers contributing significantly to this influx. However, these banks struggled to put the funds to productive use locally, according to McQuarrie.

New York banks provided loans to stock speculators to generate profits from those funds. During the autumn, rural banks withdrew their balances in New York to compensate farmers for their harvests. When New York banks repaid these loans, speculators were forced to sell their stocks, causing stock prices to decline, as stated by McQuarrie.

"The banking system was quite different," he stated. "It was organized, almost routine, and money would always become tight in September."

The creation of the Federal Reserve in the early 20th century marked the end of the cycle, according to McQuarrie.

'It gets in the psyche'

The baffling nature of September's losing streak is more pronounced in modern times, according to experts.

Investor psychology is perhaps the most significant factor, they said.

"Yoder stated that J.P Morgan's narratives have a self-feeding element, similar to how a recession narrative can cause a recession. This idea gets ingrained in people's minds."

There are likely other contributing elements, she said.

To minimize capital gains tax liabilities, mutual funds typically engage in tax loss harvesting by selling stocks near the end of the fiscal year, usually around October 31. Funds provide capital-gains tax estimates to investors in October.

Yoder stated that mutual funds are frequently "pushing forward" tax-oriented stock sales into September.

The uncertainty of investors regarding the US presidential election results in November and the upcoming Federal Reserve policy meeting, where officials are predicted to reduce interest rates for the first time since the Covid-19 pandemic started, may intensify the weakness this September, as stated by Yoder.

"Markets don't like uncertainty," she said.

McQuarrie stated that there is no satisfactory explanation for the pattern's continuation, except for a psychological explanation.