October is a month where people like to be frightened–setting up decorations, planning pranks, and getting ready for the spookiest day of the year, Halloween. It seems like wherever you turn in October, scary is the name of the game, and the finance world is not spared. In finance, the month of October is approached with wariness due to something known as the October Effect. The October Effect is a phenomenon that purports that stock market crashes have mostly happened during this month, and therefore, it is a risky month in which to make investments. Is this actually true, though? Is the October Effect legitimate? Or is it simply a myth or superstition?

We took a look at some facts and statistics to get to the bottom of this so-called phenomenon and what it means for you.

The Statistics Are Not Supportive

The most famous stock loss events that happened in October include the 1907 Bank Panic, Black Monday in 1987–a day where the Dow saw an enormous decline, as well as Black Monday, Black Tuesday, and Black Thursday in 1929, leading up to the Great Depression. These events are certainly frightening and did coincidentally all happen in October. 

However, there are many other stock market losses that happened in other months of the year. Notably, Black Friday in 1869, which caused a devastating market crash, happened in September, as did the plummeting Dow in 2001 and 2008. September is actually consistently a worse month for the stock market than October. The end of the year also causes the market to decline plenty in November and December. Springtime months see their fair share of falling markets, too–enough to poo-poo October’s so-called “Effect” as just being an unfounded poor reputation.

October Effect: A Self-Fulfilling Prophecy

The above being said, October still is considered one of the most volatile months for the stock market. But why? What is it about October that would cause so much stock activity–usually negative? One theory is that the belief in the October Effect actually causes elements of it to be true. People are more likely to sell due to fear of a decline. Even if there is no evident reason for October to be bad for the stock market, the psychological belief that it is causes it to be. In fact, the Stock Trader’s Almanac called October a “jinx” month.

October May Actually Be a Good Time to Invest

When many investors see a particular time period, such as the month of October, in a negative light, it actually creates unique opportunities to buy stocks for those who have missed getting into certain companies in their early days. It’s always important to pay attention to what is happening during the stock market at the time you are ready to invest, and not to put so much faith into superstition. October may be volatile, but it can also serve you well.

It is always smart to consult with an expert when considering making investments. At DeSantis, Kiefer, Shall, & Sarcone, we will work with you to help you make financial planning decisions, no matter what time of year it is.