The October Effect

Have you been feeling a tad jittery lately?  Sweat beading on your forehead when you look at the market news? Just waiting for something to happen?  No wonder…it’s October!

October is a month notorious for financial disasters – Black Monday, Tuesday and Thursday all happened in the month of October 1929.  Then came the Great Depression.  The 1987 sharemarket crash occurred on 19 October.

Whilst history shows a slight underperformance in October, rather than being an actual phenomenon, the “October effect” is considered more a psychological expectation.  The crashes detailed above have done nothing but keep the perception alive!

A more rational explanation is that the market weakness in October can be attributed to global influences and tax loss selling in the US, which flows through to Australia.  This tax loss selling is where investors sell off their losing stocks to offset capital gains at the end of the financial year and buy back in.

This weeks article was written by Michal Park