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The October stock market has a reputation like no other month’s. The “October Effect” is the long-standing belief that stocks turn unusually volatile and prone to sharp declines in October, and it is built on some of the worst crashes in market history. Yet the full record is more surprising, because the same month has also produced some of the market’s biggest rebounds.
The phrase even has a political cousin. In the fall of 1980, with 52 Americans held hostage in Iran and the crisis leading the nightly news, Ronald Reagan’s campaign manager William Casey warned of an “October surprise,” a dramatic late development that could swing the election before voters reached the polls. The term stuck, and ever since an “October surprise” has meant a late-season shock that rewrites the story and catches everyone flat-footed.
The stock market works much the same way. Its biggest moves often arrive when investors are looking the other way, and October has a long history of proving it. Before you let the calendar drive your decisions, though, it helps to separate what actually happened in October from what investors only think happened.
October Stock Market Crashes: How the Month Earned Its Reputation
October’s fearsome reputation rests on a handful of genuinely brutal days.
On October 28, 1929, the Dow Jones Industrial Average fell 12.8% in a single session, then dropped nearly 12% more the next day. Together, those two sessions marked the start of the Great Depression.
Nearly sixty years later came the day professionals still call Black Monday. On October 19, 1987, the Dow lost 22.6% in a single session, the largest one-day percentage decline in its history. Nothing since has come close.
The 2008 financial crisis added the modern chapter. October 2008 was one of the worst months for the S&P 500 in decades, as the index fell nearly 17% while credit markets froze and the fallout from Lehman Brothers’ collapse spread.
Three crashes, all in October. It is easy to see how the October Effect took hold.
October’s Biggest Rallies and the ‘Bear Killer’ Effect
Here is what the fear leaves out. October is also where bear markets tend to die. The Stock Trader’s Almanac has long called it a “bear killer,” and for good reason. Several major declines found their bottom in October and reversed higher, including the lows of 1990 and 2002, handing patient investors some of the best entry points of the last half-century.
The most recent example is October 2022. After a miserable year, the S&P 500 jumped about 8% that month, the Dow surged nearly 14%, and the Russell 2000 gained roughly 11%. Investors who sold in fear locked in their losses right as the turn arrived.
Index figures cited above are from S&P Dow Jones Indices, Dow Jones, and FTSE Russell market data.
What the October Effect Means for Investors
The real lesson is not that stocks are doomed in October, and not that the month can be ignored. It is that October’s volatility cuts both ways: the market can change direction in a hurry, and it often does exactly that this month.
That is why October rewards paying attention rather than looking away. The investors who get hurt are usually the ones caught flat-footed, selling into a bottom out of fear or holding the wrong names into a decline. Knowing what you own, and watching closely when the market is most prone to turn, matters more this month than almost any other.
The Bottom Line on October’s Stock Market
October has earned its reputation for drama. What it hasn’t earned is the assumption that the drama always ends badly. The crashes were real, but so were the rebounds. The month favors investors who stay alert and know what they own, not those who fear the calendar and not those who ignore it.
October Stock Market: Frequently Asked Questions
Is October a bad month for the stock market?
Not on average. Despite its reputation, the October stock market has posted a positive long-run average return. The month has produced historic crashes, in 1929, 1987, and 2008, but also major bottoms and rallies, in 1990, 2002, and 2022.
Why is October so volatile for stocks?
October combines a history of dramatic selloffs with the start of third-quarter earnings season and, in election years, added political uncertainty. That mix is why the market can turn quickly. The volatility is real, but it runs in both directions.
What is the October Effect?
The October Effect is the theory that stocks are more likely to fall in October. It is more perception than rule: the month’s worst days are dramatic and memorable, but its average performance has not been negative.
October is a reminder that the market can turn on a dime, and the investors who come out ahead are the ones watching when it does. That is what Market360 is for. In it, Louis Navellier breaks down what is moving and what it means for your money, in plain English and straight to your inbox. Best of all, it is free. Sign up here and stay a step ahead of the crowd.
