Here's why September and October are historically weak for stocks
Why are September and October historically weak for stocks? For answers, I turned to Mark Higgins, senior vice president at Index Fund Advisors and author of the book, Investing in U.S. Financial History: Understanding the Past to Forecast the Future.
The answers have been edited for clarity.
What is it with September and October being weak months for stocks? Has this always been the case?
Yes. The most intense panics on Wall Street have tended to occur during the late summer and early autumn months. This can be traced all the way back to the 1800s. A few notable examples of exceptional panics include Black Friday of 1869, the Panic of 1873 and the Panic of 1907.
But why September and October?
It is a byproduct of an old weakness in the U.S. financial system. Prior to the reintroduction of a central banking system with the passage of the Federal Reserve Act of 1913, the U.S. was limited in its ability to adjust the money supply in response to market conditions.
The inelasticity of the U.S. currency made the late summer and early autumn months an especially precarious time, due to the agricultural financing cycle. In the 1800s, the U.S. economy still relied heavily on agricultural production. For the first eight months of the year, American farmers had a limited need for capital, so excess funds held on deposit in state banks were shipped to New York banks or trust companies to earn a higher rate of return.
When harvest time arrived in August, state banks began withdrawing their capital from New York, as farmers drew on their accounts to fund transactions required to ship crops to market.
The agricultural financing cycle created chronic shortages of cash in New York City during the autumn months. If these
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