Alison Griffiths

Black October? Fugetaboutit! If you are an investor — and anyone with an RRSP, RESP, TFSA, etc. is — the month that should make you tremble is September. Humans love the onset of fall, but the stock market doesn't.

October is commonly anointed as the worst month for investors because the most memorable stock market crashes have occurred in the time of the pumpkin.

Here are the top five October free-falls for the Dow Jones Industrial Average (DJIA):

YearPercent change
1987-21 per cent
1929-20 per cent
1907-15 per cent
2008- 14 per cent
1932- 13 per cent

And who can forget the carnage kicked off in October 2007 as the real estate market in the U.S. and then worldwide began to unravel?

Despite these grim October statistics, September actually wins the trophy for worst month historically. In 1929, for example, the Dow plummeted nearly 31 per cent in September. The 20 per cent drop the next month made The Great Crash of '29 official.

The fourth and fifth worst months which humbled the mighty Dow belong to September 2001 and 2002. And another laurel for September was the nearly 800-point drop in the Dow in 2008 -- the height, or rather depth, of the financial implosion. It was the largest single-day slide in the history of the index. The third greatest single day decline also happened this month in 2001, immediately following the 9/11 attacks.

But the most compelling argument for a lousy September in stocks is the sheer number of declines over time. On average it has been a down month since 1929.

Of course, there's that lovely phrase coined by Stanford computer scientist, Dr. Sam Savage, "The flaw of averages." To explain it Savage used a cartoon of a drunk man staggering along a busy highway. The man's average position places him safely right down the centre line. But along the way he is run over by three vehicles.

The flaw of averages for September is evident in 2010 when stocks bucked the historical trend and jumped with an eight per cent gain for the Dow.

Still, "this particular September (2012) has a calendar that is full of minefields for equity markets," noted Avery Shenfeld, CIBC World Market's chief economist in a recent report.

On the plus side for the rest of the month:

  • Upcoming U.S. presidential election — usually signals a positive market.
  • Housing — clearly firming up south of the border and, so far, not softening too drastically in Canada.
  • Cash — Corporations in Canada and the U.S. are sitting on bags of dough — the infamous "dead money" criticized by Bank of Canada governor Mark Carney. This cash actually gives companies tremendous opportunity for mergers and takeovers, new hiring and strategic capital expenditures.
  • Interest rates — still down for the count and not much sign of an increase. Low rates drive investors to the stock market.