Why October Is A Special Month In The Stock Market (2024)

FAQs

Why October Is A Special Month In The Stock Market? ›

The October effect refers to the psychological anticipation that financial declines and stock market crashes are more likely to occur during this month than any other month. The Bank Panic of 1907, the Stock Market Crash of 1929, and Black Monday

What is true about October is that it traditionally has been the most volatile month for stocks. According to research from LPL Financial, there are more 1% or larger swings in October in the S&P 500 than in any other month in history, dating back to 1950. September, not October, has more historical down markets.

According to Reuters, since 1945, April and December are tied as the best-performing months of the year for stocks, with an average return of 1.6%. (September is notoriously the worst, with an average loss of -0.6%.) During recessions, April's positive performances can be even more pronounced.

In some stock markets, the October Effect also referred to as the Mark Twain effect is the phenomenon of stock returns in October being lower than in other months. The reference to Mark Twain comes from a line in Mark Twain's Pudd'nhead Wilson: "October.

October Is The Best Month For New Stock Market Rallies.

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

It is not a hard and fast rule, but rather a guideline that has been observed by many traders over the years. The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day.

With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].

Which month does the stock market go down? ›

The September Effect refers to the historically weak stock market returns observed during the month of September.

There were many causes of the 1929 stock market crash, some of which included overinflated shares, growing bank loans, agricultural overproduction, panic selling, stocks purchased on margin, higher interest rates, and a negative media industry.

The Halloween Effect is the tendency of the stock market to go up more during the six months after Halloween than it does the other half of the year. But investors should beware using this theory as investment advice, since long-term investment works better.

However, some traders and investors believe that markets tend to trend downward on Mondays. This can mean much lower returns on Monday than there were to be had on Friday, making Monday traditionally known as a good day of the week to snaffle up potentially undervalued stocks and indices.

Stock prices fall on Mondays, following a rise on the previous trading day (usually Friday). This timing translates to a recurrent low or negative average return from Friday to Monday in the stock market.

Wall Street analysts' consensus estimates predict 3.6% earnings growth and 3.5% revenue growth for S&P 500 companies in the first quarter. Analysts project full-year S&P 500 earnings growth of 11.0% in 2024, but analysts are more optimistic about some market sectors than others.

September is traditionally thought to be a down month. The September effect highlights historically weak returns during the ninth month of the year, which could be aided by institutional investors wrapping up their third-quarter positions.

Talk of stock market seasonality tends to pick up towards the end of the year, and for good reason. Since 1950, November has been the strongest month of the year for stock market performance. A mutual fund quirk could be driving part of the year-end seasonality.

“I see a lot of signs of excessive negativity,” Diton said. “One thing October has done a whole bunch of times is make a historic bottom in the month. A lot of major bottoms have occurred in that month. And I actually think the fourth quarter is going to be positive, and I think that October is going to be positive.”

Based on the stock market's historic performance, there's never necessarily a bad time to buy -- as long as you keep a long-term outlook. The market can be volatile in the short term (even in strong economic times), but it has a perfect track record of seeing positive returns over many years.