Key Highlights

• This October effect is referred to in the October stock market.
• Stock markets are being affected by investor sentiment, which has been conditioned over the years due to numerous events affecting financial markets.
• The October stock market has been a recognised irregularity in the financial calendar since it implies that stocks will fall from time to time this month.

Understanding the October Stock Market

The effect of the October factor is described in the October stock market. The impact of the multiple developments that have been affecting financial markets, and hence on stock markets, has had an impact on investor sentiment, which is conditioned over a number of years. The October stock market is recognised as an anomaly, which indicates that stocks are expected to fall in this month's Financial Calendar.

Although the idea of the October stock market is considered to be more of an expectation than a natural phenomenon, according to many statistics, October's unique reputation for market and stock losses is due to a series of events over the decades. These include the years of Panic in 1907, Black Tuesday 1929, Black Thursday 1929, Black Monday 1929 and 1987.

One of the worst single-day drops in stock market history took place on October 19, 1987, infamously referred to as Black Monday. In a single day, the Dow dropped 22.6% and caused massive panic that has left investors feeling wrong about October.

Market research and statistics have also found that October was most likely to face the rage of financing disruption in September. The catalyst events in September or several months prior to this were the 1929 and 1907 crashes, which are known to have triggered panic among investors in October. In either case, domino effects led to the ultimate market crash in October.

Comparably, the September 2001 attacks and the September 2008 subprime mortgage crisis both had more significant single-point drops in the Index than Monday 1987. The decline of 2008 caused the U.S. economy to fall into recession in less than 24 hours, and that wiped out more than a trillion dollars' worth of investments worldwide.

Conclusion

It is concluded that the negative reputation of the financial calendar has a more significant psychological impact on investors, mainly due to the high number of black days in October. In addition to the effects of investor psychology, which continues to dominate investor sentiment, statistical evidence does not support the idea that stocks are trading poorly in October, other than the fact that the idea of the October stock market, known as the October effect, continues to dominate investor sentiment.

Although there are many benefits to limiting the financial crisis and investor panic to just one month of the year, October should no longer be regarded as the month of investor sentiment and fear of the stock market, as opposed to the rest of the year.