Just like the September Effect, the October Effect is allegedly something that causes a weak stock market during a certain calender month. Is it true? Well, once again, it depends on which period we elect to analyse.
If we look at the average for a 100 year period, we see that the United States stock exchanges have positive values for the month of October. Still, October is the month were several notable market dips occurred, and this is engraved in the minds of investors.
Examples:
- The Panic of 1907 started in mid-October. During three-weeks, the NYSE fell by nearly 50% from its peak the previous year. This event is also known as the 1907 Bankers’ Panic and the Knickerbocker Crisis.
- The Black Tuesday of 1929 occurred on October 29. It was the highest trading volume day of the Wall Street Crash of 1929 on the New York Stock Exchange. A followed in the footsteps of the Black Thursday of October 24, when the NYSE lost 11% of its value at the opening bell. On October 28 (Black Monday), margin calls forced many investors to exit their positions and the Dow lost 38.33 points (nearly 13%).
- The infamous Black Monday of 1987 occurred on October 19, when the Dow Jones plummeted 22.6% in a single day. It was a sudden, unexpected stock market crash with global implications.
With that said, stock market dips and crashes can occur during any month. The Original 1869 Black Friday did for instance happen on September 24, and the September 11 events of 2001 caused a substantial, albeit single-day, dip in the DJIA. It should also be noted that if we look at the last hundred years, October has been the end of more bear markets than the beginning of them.