The “October Effect”: Fact or Fiction?

As we head into October and the second week of the government shutdown, a few of you have asked about the so-called “October Effect,” the belief that markets are more likely to decline this month due to historical events like the 1929 Crash or the 2008 Financial Crisis. While it’s true that October has seen its fair share of volatility, it’s important to recognize that this perception is largely psychological rather than statistical.

In reality, markets are influenced by a complex mix of data, sentiment, and seasonality, and this year feels different. Despite ongoing political drama and headline risk, 2025 has shown us that investors are increasingly resilient. Negative news may grab attention, but the market continues to be supported by strong fundamentals: improving corporate earnings, anticipated rate cuts, and a consumer that continues to spend. Q4 also tends to be a historically strong period for equities, thanks to the holiday season and positive momentum into year-end.

So why does October still feel different?

It often comes down to investor psychology, especially “recency bias.” Like the irrational fear of shark attacks after watching the movie Jaws or seeing a recent news story, even though hippos are 100 times more deadly. The difference? Shark attacks make headlines; hippo attacks rarely do. Similarly, investors tend to focus on recent, dramatic events and assume they’ll repeat, often at the expense of sound decision-making.

This tendency to focus on the recent past can drive decisions like emotional selling during downturns or chasing last year’s hot sector, only to be disappointed the next year. Real estate, for example, soared in 2021, only to tumble in 2022. Recency bias can lead to short-term reactions that derail long-term plans.

In uncertain times, staying disciplined is not just wise, it’s essential. Investing isn’t about reacting to headlines; it’s about sticking to a strategy that reflects your goals, risk tolerance, and time horizon.

As Warren Buffett put it: “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”

As we move through October, let’s remember that volatility is part of the journey; however, it’s the long-term view that drives real results.