The October effect is the theory that stocks typically drop in October. This belief is based on history, as the dates of some large historical crashes, including the crisis in 2008, Black Monday of 1987 fame, and 1929’s Black Tuesday, occurred during this month. Although there is no evidence that these big market crashes took place in October for any other reason than coincidence, some investors believe the month is somehow forever cursed. It's the halloween of the stock market. 👻
As most statistics go against the theory, the October effect is most often considered to be a psychological expectation rather than a real phenomenon, and when ranked according to average monthly returns, October is ranked 8th out of the 12 months of the year.
According to the Dow Jones Industrial Average, which is one of the main indexes (Read about indexes here) that tracks the stock performance of the 30 most economically relevant companies listed in the US, the average monthly returns for the month of October from the year 1900 through to 2014 is 0.2%, meaning it's not actually negative growth. But, that didn't stop every major global equity index ending the week lower last week (Read our latest newsletter about this here) - the October Effect strikes again!
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
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