October has a bad reputation in the markets. The biggest crashes in history—1929, 1987, and 2008—all took place in October. This pattern does not appear to be a coincidence but rather the result of structural factors that make this month particularly volatile.
Why October is so dangerous
August and September are quiet months on the markets. Trading volumes are low. But October marks the return of professional traders who start reviewing their portfolios critically. Trading volumes in October are on average 40 percent higher than in August, while volatility is on average 60 percent higher.
October is also the month when companies publish their third-quarter results. These numbers give investors their first look at business performance after the summer. Historically, October has a higher chance of liquidity problems. Hedge funds can come under pressure from margin calls, while mutual funds may face outflows from retail investors. In the crash of 1929, banks demanded repayment of borrowed money, triggering a vicious cycle of forced selling.
The conditions for a crash
Several conditions are needed for such a crash. Historically, crashes occur when the P/E ratio of markets is far above average. In 1929, it stood at 32.6 (average: 16), and in 1987 at 23. Interest rate hikes make capital more expensive and hit markets that rely on cheap money especially hard. Before every major crash, central banks raised rates: from 3.5 percent to 6 percent in 1929, from 5.5 percent to 10 percent in 1987, and from 1 percent to 5.25 percent in 2008.
When companies and investors have borrowed heavily, they are forced to sell during market declines. Before 1929, 90 percent of all stocks were bought with borrowed money. This creates a debt deflation spiral in which selling drives further declines. Then there are hidden vulnerabilities that suddenly emerge, such as weak banking regulation in 1929, computer trading in 1987, and toxic mortgages in 2008. These risks trigger contagion, spreading problems throughout the system. Confidence is the glue of financial markets. When it evaporates, markets can collapse. This can be measured via the VIX index: during crashes, it rises above 40.
The risks in October 2025
The S&P500 is trading at P/E ratios of 22-23, above the historical average. Tech stocks are at 25-35, AI stocks are at 50-100, or making no profit at all despite valuations in the billions. This is reminiscent of the dotcom bubble. At the same time, the difference between the market-cap weighted S&P500 and the equal-weighted S&P500 is historically high.
The Fed has just started cutting rates. In September, the Fed lowered rates for the first time this year, and more cuts are expected in the coming months. Moreover, these are precautionary cuts, not a response to an approaching recession. Still, there are concerns about US government debt, which is at its highest level since World War II. Corporate debt has also risen in recent years. On the other hand, the interest burden on this debt remains low. Moreover, all concerns about repaying US government debt are misplaced. A country with its own currency can always repay its debt down to the very last cent.
When it comes to risks, the market is always bitten by the snake you do not see. Often these are strategies that have grown rapidly in a short time. That applies to passive investing (now 40 percent of all stocks), the integration of cryptocurrencies, the sharp increase in algorithmic trading (70 percent of transactions), and of course the concentration in Big Tech. These factors could amplify moves in the next crash. On top of that, there are plenty of geopolitical risks, including the conflict between the US and China, the war in Ukraine, tensions around Taiwan, and American polarization. However, these are mainly risks that are well recognized, and once risks are widely acknowledged, they tend to become opportunities instead, forming the perfect wall of worry for a bull market to climb.
This time is different
Since the Global Financial Crisis, modern central banks have more tools to fight a crisis. Financial regulation has been strengthened with higher capital requirements and stress tests. Technological buffers such as circuit breakers limit extreme volatility.
October 2025 does have some risk factors resembling previous crashes: higher valuations, extreme debt levels, and geopolitical tensions. However, crashes are not inevitable—they only occur when multiple factors coincide. Often, a crash is preceded by a longer period of euphoria. In that sense, the correction in April acts as a kind of vaccine against a crash in the short term.
The chance of a crash is therefore not overwhelming. Diversification, risk management, and avoiding excessive leverage remain the best defense. A crash also creates opportunities for long-term investors. As Warren Buffett puts it: “Be fearful when others are greedy, and greedy when others are fearful.” Without a crash, October belongs to the best months of the year.
Han Dieperink is chief investment officer at Auréus Vermogensbeheer. Earlier in his career, he was chief investment officer at Rabobank and Schretlen & Co.