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 be hesitant 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 of 1987 both occurred in October — and going even further back in time, the Bank Panic of 1907 also began in October.

And that has led investors to call the worry about another potential market shock this particular month the “October effect.” That concern may prevent some investors from buying stocks this month as they worry about a possible catastrophe that could immediately affect their portfolios. But is this really the right move? Was October really a disaster for the markets, and even if it wasn’t the best month, should you hold off on investing right now? Let’s look to history for some answers.

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S&P 500 in October

The S&P 500 (^GSPC -0.17%) in fact, it advanced more frequently than it declined in October over the past five years. In October 2019, 2021 and 2022, it climbed 2%, almost 7% and almost 8% respectively. And the benchmark fell slightly more than 2% in October 2020 and 2023. We can see that the gains were generally more significant in size than the losses.

History also shows us that October has marked a positive turning point many times for the S&P 500, with the stock hitting a low and then rising by double digits over the next few months. We saw this in 1990, 2001 and 2002.

^ SPX data by YCharts

This suggests that even if the market dips in October, it could represent a fantastic buying opportunity, giving investors the chance to get in on a lot of quality players at 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 worst market events ever happened in October, but it’s critical to remember that they didn’t happen by accident just because October passed. Economic conditions take time to develop, so if all is well in early October, stocks will not crash uniquely because October has arrived.

Another history lesson

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

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

All of this means that, right now, you shouldn’t worry about the October Effect. History tells us that, outside of certain major crashes, recent Octobers have actually been pretty decent for stock performance. And even if this is an exception, it will not affect our long-term performance. Either way, it can provide us with interesting buying opportunities that will enhance that long-term performance. So in October, invest like any other month of the year, looking for fair prices in quality companies you want to hold for the long term.