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Will the U.S. Stock Market Crash? October Has a Bad Track Record

What is it about October? It goes without saying that it’s the spookiest month of the year. For starters, there’s Halloween. All those ghosts, ghouls and gravestones start popping up around the neighborhood. And of course, it starts to get dark a lot earlier in October. Leaves start falling from the trees. Bare branches reaching into a graying sky like skeleton fingers.

Oh, and of course, there’s October’s incredible track record for repeatedly witnessing the complete and total meltdown of U.S. financial markets. From mere economic downturn to history’s worst stock market crashes, October seems often to arrive on a foreboding wind and end in total despair. From the Banking Panic of 1907 to the start of the Great Depression in 1929 to the wild events of Black Monday in 1987, October has a genuinely frightening history.

And at this moment, with a new October upon us and an ominous cloud of economic foreboding looming ahead, it’s hard to not to be haunted by our past. 

Not that we’re trying to bring you down. We can’t actually predict a recession, let alone a stock market crash. After all, there are plenty of economists out there at this very moment debating where this is all headed. Some say we’re merely in store for a soft landing–that is, a corrective step back from the aggressive growth, rapid inflation rate, and high interest rates of the last several years. We might lose a few jobs, but nothing catastrophic, they suggest.

Others suggest we’re staring right down the barrel of an economic recession and its close friend, the bear market.

Most economists hold the common view that we are likely to experience at least some economic hardship in the coming months and perhaps years. There’s just disagreement on exactly how bad that hardship might become and how long it might last.

Some of the underlying indicators like a low unemployment rate and cooling inflation are promising. On the other hand, consumer prices remain high, interest rates are prohibitive to many prospective borrowers, and Americans share a general sense of anxiety over what’s to come.

So are we speeding toward a stock market crash? And how inevitable is a recession? Honestly…we have no idea. And that’s because most economists aren’t totally sure either, or at least, every economist you speak to is likely to give you a slightly different opinion on what’s coming.

We can’t see into the future. But we have a great window into history. So rather than tell you what’s coming this October, we’ll tell you about some of the worst Octobers in past.

For a deeper look at one of the more pressing indicators of economic pessimism, check out our article on how inflation has impacted American consumers over the last several years. Otherwise, read on for a look back on October’s greatest hits (by which, of course, we mean its most catastrophic economic events).

What the Experts Are Saying

Well, the experts are, quite honestly, saying a lot of different things all at once, which is pretty frustrating if you’re an American just trying to get by. Some suggest that all evidence is mounting in a direction that inevitably points to a recession, and quite soon. An article in Fortune says that “a major auto strike, the resumption of student-loan repayments, and a [a government] shutdown that may yet come back after the [recently negotiated] stop-gap spending deal lapses, could easily shave a percentage point off GDP growth in the fourth quarter. Add those shocks to other powerful forces at work on the economy — from dwindling pandemic savings to soaring interest rates and now oil prices too — and the combined impact could be enough to tip the US into a downturn as early as this year.”

The article from Fortune suggests that we’ve only really begun to feel the lagging effects of rising interest rates, and that the worst is yet to come for would be borrowers. Additionally, any number of the events above or something as yet unforeseen could be the spark to light an economic meltdown. 

And yet, with all of those ominous signals on the horizon, a recent projection from Goldman Sachs argues that the situation isn’t quite as urgent as some would have us believe. To the point, an article in CNBC suggests that there is a slightly less foreboding tone among investors than even just a few months ago. The CNBC article indicates that “Wall Street firms have also been signaling increased optimism that a recession — typically defined as two consecutive quarters of declines in gross domestic product — may be avoided. Goldman Sachs now predicts a 15% chance of a recession, down from 20%. Others, including Bank of America and JPMorgan, have also recently backed off stronger recession calls.”

And as economists become marginally more optimistic, some have even expressed the view that the would-be recession could instead just be a minor hiccup for the economy writ large. According to an article from Reuters, “The economy grew much faster than expected in the first quarter of the year, unemployment is ultra-low, job growth remains solid, and inflation is decelerating fast. Recession calls are getting pushed back – early next year is the latest new dawn – and the ‘soft landing’ narrative is regaining traction.”

If this narrative is wrong, it would not be the first time that economists have erred on the side of optimism. Fortune points out that many of history’s worst economic hardships have been preceded by exactly this type of misplaced rosiness, which is why we want to take a closer look at the history of October stock market crashes and recessions.

Foreboding Indicators of a Storm on the Horizon

Before we get into the history, let’s take a step back and consider exactly why we’re discussing this subject in the first place. In short, there are many analysts, economists and everyday Americans who believe the writing is on the wall, and that both a market crash and a recession are all but inevitable.

As an article from Motley Fool explains, “there’s a possibility the stock market could crash. Recession risks hang over the global economy, China’s real estate crisis has further to go, and rising bond yields are impacting equity risk premium calculations. It seems there is no end to the list of factors that could cause share prices to slide. However, that’s far from a certain outcome — and accurately predicting the near-term direction of the stock market is an art that’s almost impossible to master.”

With that said, there are a few figures that have economists on high alert.

The Inverted Yield Curve

While consumers don’t usually think much about something called the Inverted Yield Curve, it is an indicator that economists have frequently looked to as warning that a recession is basically inevitable. In the simplest terms, the “yield curve” refers to the return for investors on Treasuries. In a normal, healthy and functional economy, long term returns on bonds should be greater than short term returns. When this curve becomes inverted–or when short term yields become higher than long term yields–it is generally considered evidence that something in the economy is out of sync.

In most cases, the yield curve is said to be inverted when the 10 year yield is lower than the 2 year yield.

According to GuruFocus, the yield curve is inverted at the time of writing. With a 2 year yield of 5.085% and a 10 year yield of 4.818%, the current yield trends suggest that we are heading for a recession. In fact, says an article from CNBC, we have experienced six inverted yield curves prior to this one since 1978 and in every single case, a recession followed.

But why exactly does this occur? The CNBC article explains that “Primarily, it’s because it slows bank lending activities. Banks make money by borrowing short and lending long…An inverted yield curve makes the math unprofitable for banks in many cases. That means they’re more reluctant to lend to businesses, which have a harder time expanding, which slows the economy.”

The Shrinking Consumer Confidence Index

Of course, while average everyday consumers aren’t necessarily looking too closely at the yield curve, we do experience the impact of a disjointed economy in our own lives.

One of the more alarming trends is the declining sense of consumer confidence–that is, the level of optimism Americans are feeling about the short term health of the economy as observed by their willingness to spend and their ability to save.

According to a recent report from the U.S. Conference Board, “The Conference Board Consumer Confidence Index® declined again in September to 103.0 (1985=100), down from an upwardly revised 108.7 in August. “

Consumers are starting to tighten up their belts, likely because persistently high prices on consumer goods and two years of rapidly rising interest rates have placed many households in a precarious financial position.

The Shrinking Expectations Index

This precarious position is also causing Americans to feel a sense of pessimism over the immediate fate of the labor and business economies. The same Conference Board report finds that “The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—declined to 73.7 (1985=100) in September, after falling to 83.3 in August. Expectations fell back below 80—the level that historically signals a recession within the next year. Consumer fears of an impending recession also ticked back up, consistent with the short and shallow economic contraction we anticipate for the first half of 2024.”

So even as economists express mixed views about how inevitable a recession is, many Americans seem to feel implicitly that difficult economic times are up ahead.

The High Consumer Price Index

The Consumer Price Index (CPI) is a figure that is often used to measure inflation as it impacts actual consumers and American households. A higher number generally indicates a greater rate of inflation and a greater strain on the budgets of everyday Americans.

According to the most recently published figures from the Bureau of Labor Statistics (BLS), “In August, the Consumer Price Index for All Urban Consumers increased 0.6 percent, seasonally adjusted, and rose 3.7 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.3 percent in August (SA); up 4.3 percent over the year (NSA).”

In other words, while the pace of inflation may be slowing, Americans are still feeling the pain of higher expenses throughout the economy. There has, as yet, been little relief from inflation for American households

The Good News?

The Cooling Inflation Rates

In the last two years, the Federal Reserve has raised interest rates on lending from nearly 0% at the height of the pandemic, to a record high 5.5% base rate. The intention behind these rapid fire interest rate hikes was to reduce high inflation rates.

Inflation reached as high as 7% in 2021, driving up prices on everything from groceries and gasoline to building supplies and industrial materials. This prompted the steady drumbeat of rising interest rates, which has effectively reduced the rate of inflation to the most recently reported level–3.67% in August of 2023.

The Federal Reserve has targeted 2% as its ideal rate of inflation. So while the outlook has improved considerably in just a few years, inflation is still a potential cause for concern, especially as it continues to plague consumers. Indeed, there is a lag between the slowing inflation rate and the experience of paying for high consumer prices, which means that consumers have hardly felt the benefits of these improvements.

On the other side of the equation, consumers have most assuredly felt the effects of those rising interest rates, which have made the cost of homes, cars, and small business loans prohibitively high for many Americans. And there is no guarantee that we’ve seen the last of those interest rate hikes from the Federal Reserve. More on that in the next section.

The Low Unemployment Rate

In one regard, all of the factors cited above seem to suggest that we are heading for a crash and a period of recession. But this is where things get a bit weird.

Unemployment rates are extremely low and job growth remains robust. According to the most recent jobs report in September of 2023, job growth actually surpassed the most optimistic projections from economists. An article from CNN Business reports that “The US job market is still kicking off plenty of heat, with hiring surging by a surprisingly high 336,000 positions last month; however, wages are cooling off. Average hourly earnings rose by 0.2% in September, bringing the annual gain to 4.2%, according to the Bureau of Labor Statistics’ jobs report released Friday. That lands below economists’ expectations for a monthly uptick of 0.3% and annual increase of 4.3%.”

Rarely have such low unemployment rates precipitated an actual recession. There is a case to be made that we will simply see a leveling off of the otherwise robust labor economy–that fewer jobs will be created, that the pace of hiring will slow, and that some will even lose a portion of their income or their jobs. This is what economists refer to optimistically as a soft landing.

The belief is that the current performance of the labor economy belies concerns of a recession. Fears of a stock market crash and mass layoffs are both overblown, this narrative suggests. Unfortunately, it’s not that simple. Naturally, when it comes to the economy, it never is.

Some economists worry that the economy is “overheating,” that rapid job creation and rising wages are both threatening to drive us back toward inflation. In turn, there is real concern that the Federal Reserve may resort to even further raising of interest rates.

In light of all the other factors above, this could be the event that ultimately triggers a slide into true recession, a stock market crash or both.

But again, we’ll reiterate an important point. Nobody can really predict the future. Economists are, in essence, reading tea leaves for a sense of where things are going. And a big part of that is seeing where those tea leaves have pointed us in the past.

So with that in mind…

A Brief History of October Bear Markets

Remember, we warned you that October has a way of getting pretty scary. History certainly proves as much. Three of the biggest financial crises in our nation’s economic history centered around October events.

The Bank Panic of 1907

On the relative scale, the Bank Panic of 1907 would be short-lived. But it would have a momentous impact on the shape of financial systems and financial markets in the U.S. In short, the Bank Panic was a run on banks that caused a collapse of regional banking systems and revealed the need for a central bank.

According to Investopedia, U.S. monetary policy would play a direct role in creating the conditions for a Panic. The article from Investopedia explains that “In the years leading up to the Panic, the U.S. Treasury, led by Secretary Leslie Shaw, engaged in large-scale purchases of government bonds and eliminated requirements that banks hold reserves against their government deposits. This fueled the expansion of the supply of money and credit throughout the country and an increase in stock market speculation, which would eventually precipitate the Panic of 1907.”

The actual event was triggered by the sudden bankruptcy declarations of two small New York based brokerage firms. The events spiraled into a broader loss of confidence in the trust market, causing investors to withdraw their money from banks in droves. Beginning in New York City, where the failed brokerages were concentrated, the Panic would ultimately ripple outward to regional banks across the nation.

Though the Panic began in October, it would last well past Halloween, persisting for six weeks. The Panic would shake the public’s faith in banking institutions and the financial industry at large. Absent a central bank, banking magnate J.P. Morgan used his power, influence, and private funds to prop up the banking industry and prevent a complete crash of the stock market.

The Panic would ultimately lead to the creation of the Federal Reserve as a backstop for the banking industry.

The Wall Street Crash of 1929

The Crash of 1929 is certainly the most notorious calamity in America’s financial history. Indeed, it is widely recognized as the starting point of the Great Depression, an as yet (and hopefully never again) matched period of economic decline, despair and desperation in both the United States and throughout the world.

It began on October 28th, 1929. And it would come on the tail end of a period of absolutely thrilling and unprecedented growth in the United States. From 1921 to 1929, stock prices soared to heights never before seen.

In the aftermath of World War I, a young generation of Americans pursued profit and party in equal measures. This period was known as the Roaring Twenties, and it was wholly defined by optimism. And it’s easy to see why. The Dow Jones Industrial Average increased six-fold over that duration, going from 63 in August of 1921 to its peak position of 381 in September of 1929.

According to an article from the Federal Reserve, that dizzying high prompted an economist of the time named Irvin Fisher to observe that “stocks have reached what looks like a permanently high plateau.”

It would take only a month to prove Mr. Fischer horribly wrong. And it would take roughly another month for livelihoods, fortunes and futures of millions to be wiped from existence. According to the article from the Federal Reserve, “The epic boom ended in a cataclysmic bust. On Black Monday, October 28, 1929, the Dow declined nearly 13 percent. On the following day, Black Tuesday, the market dropped nearly 12 percent. By mid-November, the Dow had lost almost half of its value. The slide continued through the summer of 1932, when the Dow closed at 41.22, its lowest value of the twentieth century, 89 percent below its peak. The Dow did not return to its pre-crash heights until November 1954.”

The events of the Great Depression eventually led to the election of President Franklin D. Roosevelt, the initiation of the New Deal, and the creation of an array of Federal government agencies charged with regulating America’s stock market, most notably the Securities and Exchange Commission (SEC).

Black Monday 1987

The 1980s marked another period of rapid growth in the stock market, with a five year “bull run” driving prices up from 1982 through 1987. Starting at 782 in August of 1982, the Dow Jones Industrial Average rocketed to 2,722 by August of 1987.

But mid-October of 1987 brought a cascade of bad news to global financial markets, beginning with the U.S. House introducing a bill that would strip tax benefits for corporate mergers and buyouts. The very same day brought an announcement of unexpectedly high foreign trade deficits. As these events sent shockwaves through the stock market starting that Wednesday (October 14th), markets declined sharply through the end of the week. With markets closed over the weekend, selling pressure only grew.

Then came the morning of October 19th. That sell pressure led markets to open with a deep imbalance of sell vs. buy orders, driving prices down across the markets. The Dow Jones fell 508 points that Monday, losing 20% of its value in one day of trading.

The Federal Reserve would play a central role, as designed, in propping up markets, injecting funds into the banking system, and creating liquidity in the midst of a Wall Street sell-off. According to the recollection of future Federal Reserve Chair Ben Bernanke, “The Fed’s key action was to induce the banks (by suasion and by the supply of liquidity) to make loans, on customary terms, despite chaotic conditions and the possibility of severe adverse selection of borrowers.”

While the stock market had indeed crashed, U.S. markets succeeded in averting a recession, or at least delaying one until 1990.

A Glimmer of Hope

While we can’t say much for current economic indicators and where things are actually heading, we can at least offer this counterpoint to the doom and gloom of Octobers past. According to Forbes, “Investors are optimistic the market can regain its mojo in October as it enters a period that has historically been the best four-month stretch of the year for the S&P 500.”

After all, the holidays are upon us. Americans do love to spend during these next few months. What happens in the next month or two could say a lot about what the next few years hold for the U.S. economy.


Since we really can’t predict one way or another what all of this means for the short term future of the U.S. economy, the best advice we can offer you is to be prepared for all possibilities. The simplest reality is that recessions happen, which means that you will experience one at some point.

Whether that comes with a stock market crash or not is also impossible to predict. But whatever happens, we offer you some tips on how you can be ready.