October Surprise: Stock Market Not Always So Spooky

Oct. 9, 2009— -- For sports fans, the month of October means the World Series. Kids equate it with Halloween. For Starbucks junkies, it's the return of pumpkin-spice lattes.

But for stock market investors, October has been notoriously synonymous with their worst fears: crashes. The most infamous and steepest stock market value declines -- "Black Friday" in 1929, "Black Monday" in 1987 and "Black Week" in 2008, when the Dow Jones industrial average lost 22 percent in eight consecutive sessions -- all happened in October. In 1989, a lesser-known, "mini crash" took place October 13, another "mini-crash" occurred in October 1997.

Stories and theories on what may be behind seemingly spooky October market conditions tend to circulate this time of year, with investors, traders, experts and academics weighing in. Usually, much of the analysis comes down to logical speculation or outright dismissal of the correlation.

For example, Washington University economics professor Stephen Williamson earlier this month put forth his "Spurious Correlation Theory," which more or less asserts that putting credence in the widespread notion about October spelling doom for stocks is no more rational than tying the likelihood of extended periods of wintry weather to ceremonies involving celebrated groundhogs.

To get some handle on whether there is any statistical basis for October being a scary month for stocks, researchers at MarketHistory.com crunched more than a century's worth of aggregated DJIA index return data for each month. Their conclusion: that September, not October, is actually the single worst month for stocks, at least on average, over the long term.

In September, the Dow has produced, on average, a decline of -1.18 percent. Octobers, on the other hand, have been slightly bullish, producing an average return of 0.2 percent. February is the only other month that over time has produced an average negative (-0.3) return. December, incidentally, has been the single best month for stocks, with an average return of 1.39 percent.