Should You Worry About the “October Effect”? Here’s What History Says.

If you never walk under a ladder or open an umbrella indoors, you may also hesitate to buy stocks in October. This particular month of the year has been known for market crashes and financial crises over time. The stock market crash of 1929 and Black Monday in 1987 both happened in October — and reaching even farther back in time, the Bank Panic of 1907 also started in the month of October.

And that’s led investors to call the worry about another potential market shock in this particular month the “October Effect.” This concern may keep some investors from buying stocks this month as they worry about a possible catastrophe that might immediately hurt their portfolios. But is this really the right move? Has October really been a catastrophe for markets, and even if it hasn’t been the best month, should you still hold off on investing right now? Let’s look to history for some answers.

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The S&P 500 in October

The S&P 500 (^GSPC -0.17%) actually has advanced more frequently than it’s fallen in the month of October over the past five years. In the Octobers of 2019, 2021, and 2022, it climbed 2%, nearly 7%, and almost 8%, respectively. And the benchmark fell a little more than 2% during the Octobers of 2020 and 2023. We can see that the gains were generally more significant in size than the losses.

History also shows us that October marked a positive turning point many times for the S&P 500, with stocks reaching a bottom and then going on to gain in the double digits over the next several months. We saw that in 1990, 2001, and 2002.

^SPX data by YCharts

This suggests that even if the market falls in October, it could represent a fantastic buying opportunity, offering investors the chance to get in on many quality players for a good price. It’s important to remember that market declines offer one very positive thing: bargains.

Now, let’s consider all of this information and decide whether the October Effect is a cause for concern. It’s true that some of the market’s worst events ever have happened during the month of October, but it’s key to remember they didn’t happen randomly just because October rolled around. Economic conditions take time to develop, so if all is well at the start of October, stocks won’t crash uniquely because the month of October has arrived.

Another lesson from history

This means we should look at the state of the economy, corporate earnings, and stocks’ valuations before deciding on whether the market looks set for a gain or a loss. If, indeed, the market seems to be on shaky ground, before panicking, it’s important to consider one more lesson from history. And that’s the fact that, even after the toughest of times, the stock market always has gone on to recover and gain.

So even if this October — or any future October — is a difficult one for stocks, it’s important to keep your eye on the long term and hold onto the quality players in your portfolio. One month’s poor performance or even a few bear markets won’t stop you from winning over the long run.

All of this means that right now, you shouldn’t worry about the October Effect. History shows us that, outside of certain major crashes, recent Octobers actually have been pretty decent for stock performance. And even if this one is an exception, that won’t hurt our long-term performance. If anything, it may offer us interesting buying opportunities that will boost that long-term performance. So, in October, go about your investing as you would any other month of the year, looking for fair prices on quality companies that you aim to hold onto for the long term.