Three Jack O Lanterns with Spooky Faces

"Shock-tober?" A Closer Look at the Stock Market's Spookiest Month

October 14, 2019
Krista EberlyBy Krista Eberly
Securities Analyst II

The month of October has a reputation for spooking investors. Why is this?

History reveals that higher volatility is actually common around this time of year. Besides being earnings season and serving as the run-up to the presidential or mid-term election every few years, October has also played host to some of the worst performing days in market history. 

Let's dig a little deeper. 

October: The Stock Market's Most Volatile Month

We start in 1896 — the year that the Dow Jones Industrial Average, or the Dow, first appeared. The oldest of the three major U.S. indices (S&P 500 and NASDAQ are the other two), the Dow is price-weighted and consists of 30 large, publicly traded companies. The composition of the Dow has changed over the years, in both the names and number of companies represented.  

Now, back to market volatility. October is historically the most volatile month of the year. The chart below from the Wall Street Journal and Hulbert Ratings illustrates this. It looks at the standard deviation of returns each month since the Dow’s creation:

Market Bottom

What is standard deviation? It is a measure of risk; it tells you how much something deviates from its average. The higher the number, the more price fluctuation and therefore more risk. The chart shows the Dow has experienced daily movements of 1.4 percent on average in October. According to the Wall Street Journal, this is 38 percent higher than it is for the other eleven months!

Why is October such an outlier? One reason is that two significant market crashes occurred in October, one in 1929 and one in 1987. The “Great Crash” that signaled the beginning of the Great Depression  happened between Oct. 24-29, 1929; meanwhile Black Monday, when the Dow lost a record 22.6 percent in one day, occurred on Oct. 19, 1987. However, even excluding these two events, October is still historically the most volatile month on average. It is what it is.

Why does it matter?

Especially with today's political and pandemic environments, we believe higher volatility will be with us for some time. That being said, you shouldn't let volatility derail your long-term plans. There are many ways to offset volatility, like having a diversified portfolio. So if you find that higher volatility is spooking you, contact an advisor today!

About the Author

Krista Eberly, CFP®

Krista has worked in Security National Bank's Wealth Management Division since 2012. As a Portfolio Manager, she manages client portfolios, analyzes securities and performs daily trading activities. A Certified Financial Planner (CFP®), Krista holds a Bachelor of Science degree in mathematics from Wayne State College.