October Effect - Bear Market Killer
What is the October Effect?
The October effect is the belief that the stock market tends to decline into the month. This is a result of a number of crashes occurring in October such as, the Panic of 1907, 1929 Crash, 1987 Crash, and the 2008 credit crisis.
Bear Market Killer
October often receives a tough wrap based on the psychology of the fact October brings about significant drops. In reality October is a bear market killer. October has successfully ended eleven post World War II bear markets: 1946, 1957, 1960, 1966, 1974, 1987, 1990, 2001, and 2002. October has actually been one of the best performing months leading months in the late 90s and early 2000. October is also the last earnings season of the calendar year, so it has the ability to give the final push into the year end rally. Investors should look at swift sell offs into October as the perfect time to buy the market instead of fearing it so.
October 2002 Bottom
Below is a chart example of the Dow Jones from the October 2002 bottom. Notice how this bottom lead to a multi-year rally up to the 14,000 high in 2007.
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