– The “October effect” is the belief that stocks tend to fall in October. It is largely a psychological/cultural phenomenon rather than a reliable, statistical market anomaly. (Investopedia summary, LPL Research)
– Some of the most famous market crashes happened in October (1907, 1929 routs, 1987’s Black Monday), which reinforced the month’s ominous reputation. (Federal Reserve History; Library of Congress)
– Long‑run data do not support October as a persistently losing month. Since 1928, October has averaged a positive return (roughly +0.6%); September, not October, has historically been the weakest month. (Yardeni Research; Stock Trader’s Almanac)
– October tends to be more volatile (more 1%+ daily moves), which can create both risk and opportunity. (LPL Research)
Understanding the October Effect
The October effect is a calendar‑based market superstition: because several high‑profile crashes occurred in October, many investors expect this month to be dangerous. That expectation is amplified by media labels (e.g., “Black Monday”) and human pattern‑seeking (availability bias, recency bias). The belief survives despite long‑term return data that show October is not consistently negative.
Why October feels scary
– High‑profile crashes: the Panic of 1907, the 1929 crash (Black Thursday/Black Tuesday), and Black Monday (1987) are all associated with October. (Federal Reserve History; Library of Congress)
– Volatility: research shows October has had more 1%+ swings for the S&P 500 than other months since 1950, increasing the chance of dramatic headlines. (LPL Research)
– Media and memory: memorable “black” days stick in collective memory more than steady gains.
October Crashes (examples and context)
– Panic of 1907: widespread runs on trust companies culminated in October, though strains built earlier in the year. (Federal Reserve History)
– 1929 crash: the major collapse has key events in October (Black Thursday, Black Tuesday), although underlying policy changes and stresses occurred months earlier. (Federal Reserve History)
– Black Monday, October 19, 1987: the Dow dropped about 22.6% in a single day — one of the largest single‑day percentage declines on record. (Federal Reserve History; Library of Congress)
Note: Not all major crises happen in October (e.g., Lehman Brothers’ collapse occurred in September 2008), which argues against a causative October effect.
Fast Fact
– Since 1928, October’s average monthly return has been positive by roughly 0.6% (contrary to the superstition). In contrast, September has tended to be the worst month historically (average loss around 1%). (Yardeni Research; Stock Trader’s Almanac)
The Disappearance (or weakening) of the October Effect
Two trends reduce the practical power of calendar superstitions:
1. Broader, more global investor base: many participants don’t share the same historical associations with U.S. market calendar oddities.
2. Efficient markets and information dissemination: once a calendar anomaly is widely known, trading can arbitrage it away.
Also, the media’s taste for labeling days “black” has diminished, reducing the mythology around particular months.
Is the October Effect Real?
Short answer: No as a reliable trading signal. The effect is better described as a psychological expectation rooted in historical events and amplified by volatility and media. Long‑run statistical evidence does not support the idea that October is consistently a losing month.
Are Stocks Usually Down in October?
No. Using century‑long U.S. monthly data, October has on average been positive (≈ +0.6% since 1928). By many measures, September is statistically the weaker month. (Yardeni Research; Stock Trader’s Almanac)
Which Has Been the Worst Month for Stocks Historically?
Historically, September has been the worst month for U.S. stocks (average losses larger than in October). This is supported by multiple almanacs and research sources. (Stock Trader’s Almanac)
The Bottom Line
October’s reputation reflects memorable historical crashes and higher intramonth volatility, not a robust, persistent negative return pattern. Investors should treat the October effect like other behavioral myths: be aware of it, but don’t base major strategy decisions on the calendar alone.
Practical Steps for Investors (how to respond to calendar myths and October volatility)
1. Keep a long‑term plan; don’t time markets by month
– Align investments with objectives, risk tolerance, and time horizon rather than calendar lore.
2. Maintain proper asset allocation and rebalance
– Rebalancing disciplines (annual or systematic) help capture gains and control risk regardless of calendar month.
3. Use dollar‑cost averaging if nervous
– Spreading purchases over time reduces sensitivity to market timing and to any single month’s volatility.
4. Size positions and define risk limits
– Use position sizing and maximum loss rules to limit the impact of any single trading day or month.
5. Consider hedging carefully (if appropriate)
– Hedging (put options, index protection, inverse ETFs) can limit downside but carries costs; use based on explicit risk management needs, not superstition.
6. Focus on volatility management, not the calendar
– If you expect higher volatility in October, consider measures like diversifying across uncorrelated assets, using stop orders cautiously, or reducing leverage.
7. Use tax and portfolio opportunities
– Volatility can create opportunities for tax‑loss harvesting, buying bargains, or rebalancing into underweighted assets.
8. Separate emotion from data
– Remember availability and recency biases. Review historical returns objectively (e.g., Yardeni Research, LPL) before making decisions.
9. Keep an emergency fund and liquidity buffer
– If market stress affects your job or cash needs, having liquidity avoids forced selling during volatile months.
10. Educate and document
– Keep a written investment policy statement. Having rules to follow reduces the chance of reactionary moves from month‑based fears.
Sources and further reading
– Federal Reserve History. “Stock Market Crash of 1987.” (Black Monday)
– Federal Reserve History. “The Panic of 1907.”
– Federal Reserve History. “Stock Market Crash of 1929.”
– Library of Congress. “The Black Monday Stock Market Crash.”
– LPL Research. “Is October Really Scary?”
– Stock Trader’s Almanac. “September Almanac: Worst Month of the Year Since 1950.”
– Yardeni Research. “Stock Market Indicators: Historical Monthly & Annual Returns.”
– Forbes. “Dow On Pace For Best October Ever, Second‑Best Month In 30 Years.” (October 2022 performance)
If you’d like, I can:
– Pull monthly return tables for the S&P 500 back to 1928 so you can view exact October and September averages.
– Build a short checklist you can use each October to decide whether to act or stay the course.
,
Key Takeaways
– The “October effect” is the belief that stocks tend to fall in October. It is largely a psychological/cultural phenomenon rather than a reliable, statistical market anomaly. (Investopedia summary, LPL Research)
– Some of the most famous market crashes happened in October (1907, 1929 routs, 1987’s Black Monday), which reinforced the month’s ominous reputation. (Federal Reserve History; Library of Congress)
– Long‑run data do not support October as a persistently losing month. Since 1928, October has averaged a positive return (roughly +0.6%); September, not October, has historically been the weakest month. (Yardeni Research; Stock Trader’s Almanac)
– October tends to be more volatile (more 1%+ daily moves), which can create both risk and opportunity. (LPL Research)
Understanding the October Effect
The October effect is a calendar‑based market superstition: because several high‑profile crashes occurred in October, many investors expect this month to be dangerous. That expectation is amplified by media labels (e.g., “Black Monday”) and human pattern‑seeking (availability bias, recency bias). The belief survives despite long‑term return data that show October is not consistently negative.
Why October feels scary
– High‑profile crashes: the Panic of 1907, the 1929 crash (Black Thursday/Black Tuesday), and Black Monday (1987) are all associated with October. (Federal Reserve History; Library of Congress)
– Volatility: research shows October has had more 1%+ swings for the S&P 500 than other months since 1950, increasing the chance of dramatic headlines. (LPL Research)
– Media and memory: memorable “black” days stick in collective memory more than steady gains.
October Crashes (examples and context)
– Panic of 1907: widespread runs on trust companies culminated in October, though strains built earlier in the year. (Federal Reserve History)
– 1929 crash: the major collapse has key events in October (Black Thursday, Black Tuesday), although underlying policy changes and stresses occurred months earlier. (Federal Reserve History)
– Black Monday, October 19, 1987: the Dow dropped about 22.6% in a single day — one of the largest single‑day percentage declines on record. (Federal Reserve History; Library of Congress)
Note: Not all major crises happen in October (e.g., Lehman Brothers’ collapse occurred in September 2008), which argues against a causative October effect.
Fast Fact
– Since 1928, October’s average monthly return has been positive by roughly 0.6% (contrary to the superstition). In contrast, September has tended to be the worst month historically (average loss around 1%). (Yardeni Research; Stock Trader’s Almanac)
The Disappearance (or weakening) of the October Effect
Two trends reduce the practical power of calendar superstitions:
1. Broader, more global investor base: many participants don’t share the same historical associations with U.S. market calendar oddities.
2. Efficient markets and information dissemination: once a calendar anomaly is widely known, trading can arbitrage it away.
Also, the media’s taste for labeling days “black” has diminished, reducing the mythology around particular months.
Is the October Effect Real?
Short answer: No as a reliable trading signal. The effect is better described as a psychological expectation rooted in historical events and amplified by volatility and media. Long‑run statistical evidence does not support the idea that October is consistently a losing month.
Are Stocks Usually Down in October?
No. Using century‑long U.S. monthly data, October has on average been positive (≈ +0.6% since 1928). By many measures, September is statistically the weaker month. (Yardeni Research; Stock Trader’s Almanac)
Which Has Been the Worst Month for Stocks Historically?
Historically, September has been the worst month for U.S. stocks (average losses larger than in October). This is supported by multiple almanacs and research sources. (Stock Trader’s Almanac)
The Bottom Line
October’s reputation reflects memorable historical crashes and higher intramonth volatility, not a robust, persistent negative return pattern. Investors should treat the October effect like other behavioral myths: be aware of it, but don’t base major strategy decisions on the calendar alone.
Practical Steps for Investors (how to respond to calendar myths and October volatility)
1. Keep a long‑term plan; don’t time markets by month
– Align investments with objectives, risk tolerance, and time horizon rather than calendar lore.
2. Maintain proper asset allocation and rebalance
– Rebalancing disciplines (annual or systematic) help capture gains and control risk regardless of calendar month.
3. Use dollar‑cost averaging if nervous
– Spreading purchases over time reduces sensitivity to market timing and to any single month’s volatility.
4. Size positions and define risk limits
– Use position sizing and maximum loss rules to limit the impact of any single trading day or month.
5. Consider hedging carefully (if appropriate)
– Hedging (put options, index protection, inverse ETFs) can limit downside but carries costs; use based on explicit risk management needs, not superstition.
6. Focus on volatility management, not the calendar
– If you expect higher volatility in October, consider measures like diversifying across uncorrelated assets, using stop orders cautiously, or reducing leverage.
7. Use tax and portfolio opportunities
– Volatility can create opportunities for tax‑loss harvesting, buying bargains, or rebalancing into underweighted assets.
8. Separate emotion from data
– Remember availability and recency biases. Review historical returns objectively (e.g., Yardeni Research, LPL) before making decisions.
9. Keep an emergency fund and liquidity buffer
– If market stress affects your job or cash needs, having liquidity avoids forced selling during volatile months.
10. Educate and document
– Keep a written investment policy statement. Having rules to follow reduces the chance of reactionary moves from month‑based fears.
Sources and further reading
– Federal Reserve History. “Stock Market Crash of 1987.” (Black Monday)
– Federal Reserve History. “The Panic of 1907.”
– Federal Reserve History. “Stock Market Crash of 1929.”
– Library of Congress. “The Black Monday Stock Market Crash.”
– LPL Research. “Is October Really Scary?”
– Stock Trader’s Almanac. “September Almanac: Worst Month of the Year Since 1950.”
– Yardeni Research. “Stock Market Indicators: Historical Monthly & Annual Returns.”
– Forbes. “Dow On Pace For Best October Ever, Second‑Best Month In 30 Years.” (October 2022 performance)
If the business’d like, I can:
– Pull monthly return tables for the S&P 500 back to 1928 so the business can view exact October and September averages.
– Build a short checklist the business can use each October to decide whether to act or stay the course.