The October Effect is the assumption that the stock market tends to decline during October. There is a historical background to this assumption, as some of the biggest market crushes in October.
October Effect is unjustified
However, the survey results compiled over a longer period of time refute the truth. Some experts see the October Effect as a psychological expectation rather than an actual phenomenon based on accurate statistical data.
Some of the events in October that sparked this “myth” are 1907 market panic, Black Tuesday (1929), Black Thursday (1929), and Black Monday (1929).
Everything happened on the stock exchange of the United States. In addition, the Dow Jones collapse of 22.6 percent in one day on October 19, 1987 known as the beginning of The Great Depression.
October often marks the end of a bear market
According to Adam Hayes in his column on Investopedia, the October Effect is not really statistically significant. In fact, the stock market in September experienced more decline than in October.
Based on historical data, October often marks the end of a bear market, not the beginning of a bear market. If investors see the market performance decline in October. Then, They tend to see it as an opportunity to buy.
Compared to the downward trend, the stock market in October is more likely to experience turbulence (very rapid up and down movement). According to research from LPL Financial on the S & P500 data since 1950, there has been an upheaval of more than 1 percent in October compared to other months.
According to this research, September is the month in which the stock market shows the most decline. The catalysts for the market collapse in 1929 and 1907 are also thought to have been triggered since September or even earlier, but market reactions tend to be delayed.