Why Are Markets so Volatile in October?
Does the month of October have you concerned about market volatility?
You are not alone. The phenomenon is so common that it has come to be called the, October Effect. Some would even describe October as the “jinx month for stocks.”[1] The question then becomes, does October really mean doom for the markets and if so, why?
Is there a historical precedent pointing to October volatility?
Economists have tried and tried to come up with reasons behind the market patterns, most of which have turned up inconclusive.
Some attribute the phenomenon to the list of historical crashes that have all taken place in October, such as the Panic of 1907, Black Tuesday (1929), Black Thursday (1929), Black Monday (1929), and Black Monday (1987) and the great crash of 1987.
Others believe that the market volatility is caused by uncertainty due to election season in early November. However, The Wall Street Journal states that, “Octobers are actually slightly more volatile in non election years.”[2]
Is October volatility a self-fulfilling prophecy?
Many view the October effect as a largely psychological expectation. Markets can function much like the human body— regardless of outside influences, stress never helps. Could all the anxiety about market volatility be a self-fulfilling prophecy?
Ryan Detrick, senior market strategist for LPL Financial, told CNBC, “The bottom line is Octobers do tend to be volatile even with some of the years that you’ve had good gains. Everyone is going to be hyper-sensitive to any potential trade news this coming October."[3]
What should you do to adjust for October Volatility?
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