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Some investors dread the end of the summer, mostly because of the so-called “September Effect,” which shows that, on average, the market tends to decline during that month.
Indeed, Bank of America research finds that in 56% of the Septembers since 1928, the S&P 500 has fallen, and that over that period, the index has averaged a return of about negative 1.17% in Septembers.
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And even AI stocks aren’t immune. The September Effect typically spans sectors, and it’s coming at a time when some investors are already growing wary of the artificial intelligence trade.
So, what does this mean for holders of leading AI stocks like Nvidia (NASDAQ: NVDA) and Micron Technology (NASDAQ: MU)?
Why September is historically a bad time for the market
Part of the reason for the September slump may be psychological. After some poor-performing Septembers, investors have come to expect these declines. That leads them to rotate out of stocks, putting downward pressure on prices and thereby perpetuating the month’s poor track record.
There are also legitimate reasons for the declines, including investors locking in gains as the year nears its end or starting to sell shares as part of a tax-loss harvesting strategy.
What’s more, the Federal Reserve sometimes makes important economic decisions in September that may spur investors to shift their investment strategies. That’s the case right now, as inflation rose to 3.3% in July, and the Federal Reserve will meet in September to decide whether or not to raise interest rates.
It’s also worth noting that in 44% of Septembers since 1928, the S&P 500 has gone up. That is, of course, nearly half the time.
So while it’s true that the S&P 500 declines in September more often than not, the average decline is negligible, and the declines occur just slightly more than half the time.
What this means for Nvidia and Micron
If there’s a broad pullback in the market, AI stocks like Nvidia and Micron could lose some ground. Still, both companies are worth adding to your portfolio, and any decline could present a buying opportunity.
Consider that in its recently completed fiscal 2027 second quarter, Nvidia’s revenues more than doubled year over year to $96.2 billion, and non-GAAP (adjusted) earnings surged 120% to $2.22 per share. Nvidia’s results beat analysts’ top- and bottom-line consensus estimates for the quarter.
