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Posted on 18 April 2011 | 3,814 views

What is the October Effect on the Stock Market

Some investors may be nervous during October because the dates of some large historical market crashes occurred during this month. There’s a theory that stocks tend to decline in October, because it’s cursed.

Coincidentally, the dates of the largest “Historical Market Crashes” occurred during the month of October — known as the “October Effect” — examples are: Panic of 1907, Wall Street Crash of 1929, Black Monday, October 19, 1987 and the 2008 Financial Credit Crisis — the largest ever single day crash was in 1987 and occurred on October 19 which saw the Dow plummet 22.6% in a single day.

October often receives a tough wrap based on the psychology of the fact October brings about significant drops. In reality October is a bear market killer which October has successfully ended eleven post World War II bear markets: 1946, 1957, 1960, 1966, 1974, 1987, 1990, 2001, and 2002.

October has actually been one of the best performing months leading months in the late 90s and early 2000 and October is also the last earnings season of the calendar year, so it has the ability to give the final push into the year end rally. Investors should look at swift sell-offs into October as the perfect time to buy the market instead of fearing it so.

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