Stock market activity in September often varies significantly from the rest of the year.

In the world of finance, September has a reputation that is less than rosy. Known as the "September effect," this well-documented anomaly has seen the stock market perform poorly in nearly a century, with September being the only month with a negative average return.

Since 1928, September has produced negative returns in 55% of cases, compared to just 39% for other months. This trend is not exclusive to the US market, as it is also observed in Canada, the UK, and Asia. For instance, since 1970, the S&P/TSX composite index, the FTSE All-Share, and the Hang Seng have shown average declines of 1.4%, 1.1%, and 1.0% in September, respectively.

However, this doesn't mean that September should be feared. Rather, it presents an opportunity to test one's discipline and patience. By reviewing one's financial objectives, planning tax strategies, and confirming the coherence of one's investments, September can be turned into a springboard.

Tax strategies such as crystallizing capital losses, optimizing registered accounts (RRSP, RESP, TFSA, and TFSA), and donating certain shares for charitable purposes can help divert attention from the September effect. Investing regularly, regardless of market cycles, is also important during September.

The volatility observed in September can be explained by the resumption of activities after a summer break, particularly by institutional managers who need to rebalance their portfolios. This is reflected in the VIX index, which measures 30-day volatility expectations on the U.S. market, regularly reaching its peaks during September.

It's important to note that the stock market's performance in one month does not necessarily determine the year's performance. For instance, the S&P 500 index has fallen by 4.2% in four out of the last five Septembers, yet the market has still managed to recover and post positive returns for the year.

The "September effect" should not be interpreted as a reliable predictive indicator. Other factors, such as US debt and the income gap in Canada, also play a significant role in the financial markets. High borrowing rates and questions about the sustainability of US debt are concerns on financial markets, while the income gap in Canada has reached a record high, with wealthier households benefiting from investments while the poorest households have seen their wages decrease.

In conclusion, while September may present challenges, it also offers an opportunity for investors to test their discipline and patience. By planning tax strategies, investing regularly, and staying informed about the broader economic landscape, investors can navigate the September effect and continue to grow their portfolios.