When many of us think of October, we think of Halloween or the Day of the Dead. But every year there’s another strange phenomenon that has nothing to do with trick or treating or honoring deceased ancestors. It’s called the October Effect.

So, what happens during the October Effect? It’s all very strange, but also predictable. The October Effect is a perceived anomaly, or psychological anticipation, that the stock market will at least decline, or at worst crash, during the tenth month of the year. [1]

There are several examples of when this has been true.

The Bank Panic of 1907, the Stock Market Crash of 1929, and Black Monday of 1987 all happened during the month of October.[2] During the Bank Panic of 1907, multiple bank-runs and incidents of heavy panic selling occurred at the stock exchange. At that time, two minor brokerage firms filed for bankruptcy. Many other trust companies, such as Knickerbocker Trust, fell when J.P. Morgan refused a loan to them.

For six weeks, anxiety spread all over Wall Street until J.P. Morgan and John D. Rockefeller made deals to bring liquidity back to the markets. This panic lead to the creation of the Federal Reserve System, the central banking system of the United States that our country still uses today. [3]

The stock market crash of 1929 occurred on October 24 when panicked investors sent the Dow Jones Industrial Average plunging nearly 13% in heavy trading. It is remembered as the start of the Great Depression in the United States.

Black Monday happened on Monday, October 19, 1987. On this day, the Dow dropped more than 20% in one day.[4] The cause of this one-day crash was largely a result of computer program trading models. The Dow was able to recover when the Federal Reserve and other central banks stepped in to provide liquidity to the markets.

So, should we be afraid of more than Halloween in October? Probably not. Although these three instances are among many that occurred in the month of October, similar instances can be found in January and September. But, just to be sure, keep a closer eye on your investments this month.

References:
[1] https://www.investopedia.com/terms/o/octobereffect.asp#:~:text=The%20October%20effect%20is%20a%20the%20perception%20that%20stock%20markets,statistics%20go%20against%20the%20theory
[2]https://www.investopedia.com/articles/financial-theory/09/october-effect.asp

[3] [2]https://www.investopedia.com/terms/b/bank-panic-of 1907.asp#:~:text=The%20Bank%20Panic%20of%201907%20occurred%20during%20a%20six%2Dweek,on%20banks%20associated%20with%20them”>https://www.investopedia.com/terms/b/bank-panic-of-1907.asp#:~:text=The%20Bank%20Panic%20of%201907%20occurred%20during%20a%20six%2Dweek,on%20banks%20associated%20with%20them

[4] https://www.investopedia.com/articles/financial-theory/09/october-effect.asp

[5] https://www.investopedia.com/terms/b/bank-panic-of-1907.asp#:~:text=The%20Bank%20Panic%20of%201907%20occurred%20during%20a%20six%2Dweek,on%20banks%20associated%20with%20them.