When we talk about the potentially choppy market conditions in October, many will often refer to the mythical ‘October Effect,’ as a reason for such volatility. Let’s have a look at what’s behind the assumption that this month experiences more ups and downs than others? Is there anything there, or is it just another case of market psychology gone mad?
Whatever your take is on the situation, it’s best to be prepared in advance for all scenarios. Make sure your portfolio is diversified, and seek out a reputable and regulated broker such as easymarkets.com for the best trading experience and all the required trading tools to make the most of all market conditions – bullish and bearish ones!
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Where does the October Effect come from?
In the past, there have been some very real and significant financial catastrophes that took place in October, and that triggered market falls. These dates, to this day, are still remembered for these events. They have been dubbed ‘black’ days, and the name and reputation have persisted for many decades.
This distinction is usually reserved for when an unfortunate or disastrous crisis happens, in this example, they include the following:
- The Panic of 1907
- Black Thursday 1929
- Black Tuesday 1929
- Black Monday 1987
The devastating financial events listed above that led to the Great Depression and some rather huge crashes in the stock market all happened in October, but some like to point out that the cause of the crashes that happened during that month was actually set off in September and probably much earlier – the effects were just felt later on.
Incidentally, there isn’t any real data that suggests that October in comparison to other months is a bad month for stocks. CNBC even went so far as to call it the month of the highest-returns for the S&P 500 since 1950, after sourcing supportive data.
It seems to be no more prone to bad times than the other 11 months of the year, despite the fact that it would probably be quite helpful if financial panics and stock market collapses were limited to a single month. It’d be much easier to plan for!
Final Thoughts
We don’t really seem to want to give out the ‘black’ title much anymore. For instance, the financial crisis of 2007/2008 didn’t earn any ‘black’ days from the media, and many would think it would have certainly qualified. The thing is, some of the big declines in the Dow Jones Index for 2008 as one example were greater than any in 1987.
Nevertheless, October is the unfortunate month that contains these days, and it’s gotten a bad rap that it really doesn’t deserve as a result. The association to the ominous name denotes a negativity that undoubtedly impacts market sentiment.
Well who knows If the ‘black’ title were dropped from these dates on the calendar, would the October Effect cease to exist in the minds of investors?
