There’s only been three full trading days in October so far, but they’ve seen the markets rallying from the dumps—the S&P 500 closed trading yesterday with a 3.7% surge after losing some of the previous two days' gains earlier in the day.
But the month is just beginning, and some superstitious investors are holding their breath, hoping that early spooky season gains will fend off the cursed October Effect.
The October Effect is the perception that markets decline during the month. While there isn’t statistical evidence to prove the effect is real, many historically significant market crashes have occurred during the tenth month of the year.
-
The Bank Panic of 1907: Private financiers JP Morgan and John D. Rockefeller had to bail out the US banking system after excessive speculative investment driven by loose monetary policy led to a flurry of bank runs. The Federal Reserve was created a few years later.
-
Black Monday (1929): Preceded by Black Tuesday and Black Thursday, the Wall Street Crash paved the way for the Great Depression.
- Black Monday (1987): Computer-generated trading models, a weakened USD, and investor panic led to a global market crash that shook the world’s economy. The Dow fell over 22% on October 19, the worst single day decline on record.
Yes but: As investment strategies evolve and market-spanning, “passive” investment vehicles like ETFs become more popular, the psychological fear associated with October is fading from investor consciousness.
But still… the vibes in the economy do seem a bit off right now, don’t they?