Spooky Season for the Stock Market

by Corbin Grillo

As the calendar turns towards fall, investors enter what has historically been the spookiest season for the stock market. September and October have earned a reputation for delivering more than their fair share of market scares. 

September, in particular, has historically been the worst month of the year for U.S. stocks. In fact, it is one of only two months with negative average returns and the only month in which losses occur more frequently than gains. The causes of this phenomenon are debated, but seasoned investors and students of market history will remember some of the major events.  

In September 1931, Great Britain officially abandoned the gold standard, triggering a global market sell-off. More recently, in September of 2008, Lehman Brothers filed for bankruptcy, the result of a culmination of the issues that led to the great financial crisis. 

October’s average returns, on the other hand, are positive, but its standing as a month of mayhem for markets is still well deserved. The Wall Street crash of 1929 involved a 25% decline over just 4 days in late October and arguably sparked the Great Depression. October 19, 1987, will forever be remembered as Black Monday, when stocks dropped over 20% in one day, the largest one-day percentage drop in history. 

But we should be cautious about reading too much into these historical patterns. Stock market seasonality is interesting, but it isn’t destiny. Just because these two months have been challenging in the past doesn’t mean they will be in the future. It’s important to be aware of what’s often referred to as being “fooled by randomness.” 

We know stocks will experience corrections and bear markets, but there’s nothing fundamentally different about September and October versus other months that makes those volatile periods more likely in our opinion. It may have just been pure chance! 

From a portfolio construction perspective, our Investment Committee is aware of these seasonal patterns; however, we find that they typically don’t influence our long-term strategy. To us, relying too heavily on that type of analysis is a form of market timing, which can be hazardous to investors’ health.  We accept that spooky markets are part of the deal, and design portfolios not just to withstand those challenging periods but to opportunistically take advantage of them as well.