October’s Market Reputation: Scary Stories, but History Tells a More Nuanced Tale

Every year as the calendar flips to October, investors hear the same warnings: Watch out. This is the month of crashes. Black Monday. Black Tuesday. Black Thursday. The mythology is powerful, and the fear feels rational.

But the historical data tells a story that is far less terrifying—and considerably more interesting. October is not the market’s worst month. It is, however, its most volatile. And for investors who understand the difference, that distinction matters enormously.

The Origin of the October Effect

The “October Effect” is the widespread belief that stocks are more likely to decline during October than in other months . Its roots are real, if selective. On October 19, 1987—now known as Black Monday—the S&P 500 plunged 20.5% in a single day, the worst one-day percentage drop in its history . Once investors began looking for patterns, they found them. The crash of 1929 also occurred in October. So did the Panic of 1907 .

But this is where confirmation bias takes over. As Facet Wealth notes, once two crashes were found in the same month, “speculators attempted to draw more parallels” . Subsequent October downturns—1997, 2008, and others—only reinforced the superstition. Of the ten worst days for the S&P 500, five occurred in October . The narrative wrote itself.

The problem is that the narrative ignored the other 97 Octobers.

What the Data Actually Shows

The average return for the S&P 500 in October since 1950 is approximately +0.9% . The month finishes positive roughly 59% of the time . That places October squarely in the middle of the pack—not at the bottom.

September, not October, is historically the worst month for stocks. Over the past century, September has averaged a loss of approximately -1.0% and finished negative in about 56% of years . October’s average return is positive. Its reputation is built on variance, not direction.

Consider the crashes that gave October its name. The 1907 panic, the 1929 crash, and Black Monday 1987 were genuine and severe. But as Plus500’s analysis puts it, they represent “fewer than 5% of all Octobers on record” . The other 95% produced an average return of approximately +0.54% .

What October does have, undisputed, is volatility. According to data cited by LPL Financial, October has more 1% or larger swings in the S&P 500 than any other month dating back to 1950 . One analysis found that October’s standard deviation of returns is 21% higher than the average of the other eleven months—and still 11% higher even when excluding 1929, 1987, and 2008 . October is the month where the market makes its biggest moves, in both directions.

The Paradox: “Bear Killer” and Rebound Month

There is another side to October’s volatility that receives far less attention. The Stock Trader’s Almanac describes October as a “bear killer,” noting that the month has marked the end of 13 post-World War II bear markets or major downturns, including 1957, 1966, 1974, 1987, 1990, 2002, and 2022 .

Several major market troughs have occurred in October: the S&P 500 bottomed on October 9, 2002, after a 49% decline; on October 12, 2022, after a 25.4% drop; and on October 3, 1974, after a 48.2% fall .

This dual identity—month of crashes and month of bottoms—is not coincidental. The volatility that creates panic also creates opportunity. As Investopedia observes, “October has marked the end of more bear markets than the beginning. This makes October an interesting prospect for contrarian buying” .

The Midterm Election Exception

If the current year happens to be a midterm election year, the historical script flips into something notably more bullish.

In midterm years since 1950, October has been the best-performing month of the year for the S&P 500. According to data from Carson Investment Research, the index has averaged a gain of 3.0% in October during midterm years, with a positive return frequency of 73.7% . November ranks second, averaging 2.7% with a 78.9% positive rate .

The logic is straightforward: as Election Day approaches, uncertainty over policy outcomes begins to resolve. The market no longer needs to price in as many unknown scenarios. As JPMorgan has noted, political factors primarily affect short-term markets through expectations and uncertainty, while long-term performance depends on earnings, inflation, and interest rates .

J.P. Morgan Asset Management data shows that the S&P 500 has historically been slightly negative on average in each of the first three quarters of midterm years—before averaging a 6.6% gain in the fourth quarter .

What Actually Matters in October

For all the seasonal patterns, the historical record sends a clear message: October’s direction will be determined by the same forces that matter in every other month.

Earnings. October marks the start of third-quarter earnings season. In years where S&P 500 earnings growth has exceeded 10% year-over-year, October has historically delivered above-average returns . The trajectory of corporate profits—particularly in AI-related companies—will be a key variable.

Interest rates. JPMorgan strategists have noted that corporate fundamentals remain healthy, with profit margins above historical averages and net debt-to-equity ratios 20% to 40% below long-term norms . But the path of rates still matters for valuations, especially for growth stocks.

Fundamentals, not folklore. As JPMorgan’s analysis emphasizes, markets tend to move closer to underlying fundamentals over time. The October Effect is, at its core, a psychological phenomenon. The data does not support selling everything on September 30.

A Practical Takeaway

For investors, the historical record suggests a posture of preparation, not avoidance. October demands a seatbelt, not a crash helmet. Expect sharper daily swings. Recognize that volatility cuts both ways—it can create losses, but it also creates the conditions for the rebounds that have historically begun in October and extended through the end of the year.

The crashes that built October’s reputation were real. But they were exceptions, not the rule. The rule—across nearly a century of data—is that October is a mildly positive month with above-average turbulence. Investors who understand that distinction are better positioned to navigate whatever this October brings.