The Stock Market Survived September. What Could Go Wrong in October.

Traders working at the New York Stock Exchange (NYSE), today, Wednesday, Oct. 1, 2025.

Like the Y2K disaster or the widespread invasion of murder hornets, the highly anticipated September curse failed to materialize this year. The question is whether or not a rough patch has been avoided or simply delayed.

Both the S&P 500 and the Nasdaq Composite recorded their best Septembers since 2010, with the former gaining 3.5% and the latter 5.6% last month alone. (The Dow Jones Industrial Average gained just 1.9%, only its best September since 2019.)

Investors had every reason to expect a pause might be in order, given September’s historically rocky reputation, August’s strong performance, and ongoing policy and geopolitical worries. Yet that never happened, catching many market watchers off guard.

Still, Anatole Kaletsky, Gavekal Research chairman and chief economist, doesn’t think it’s time to sound the all-clear yet.

For one, while October can produce good stock market returns there are glaring examples to the contrary, like the crashes of 1929, 1973, 1987, and 2008. Secondly, he’s concerned about the seemingly unanimous bullishness, as evidenced by upbeat commentary from analysts, strong initial public offering demand, and high institutional investment levels last seen during the dot-com era. That’s nearly all related to artificial intelligence enthusiasm, even as “the industry’s underlying financial economics are degenerating into a frenzy of circular self-dealing reminiscent” of the 2000 bubble, he notes.

Perhaps most important however, some of the factors that made Kaletsky nervous before haven’t been resolved, even as investor complacency seems to suggest that they have been.

“The U.S. is heading straight into some big economic problems—possible recession, persistent inflation, fiscal profligacy and trade disruption,” he writes. And even if the one is averted, the others remain. “The problem for investors is that if the U.S. does manage to dodge a recession, this success will further entrench inflation, will intensify the pressure on bond markets from fiscal expansion and will aggravate the supply-side disruptions caused by protectionist trade policies and severe immigration restrictions.”

All of that could come to a head if inflation doesn’t cool in 2026, preventing any further interest rate cuts from the Federal Reserve.

All that leads him to believe that “the period of greatest danger for US financial markets lies ahead. The financial hurricane season is not over until it’s over.”

However others are less concerned about a selloff lurking around the corner. Overall concerns that we are in an artificial intelligence bubble may have peaked last month, noted Deutsche Bank Tuesday, and while government shutdowns cloud the picture, they tend not to affect stocks much. Economic data is also fairly supportive of further gains: The labor market may not be stronger than it looks, and tariffs haven’t added as much to inflation as feared.

Likewise, there’s still demand for U.S. stocks. Ned Davis Research’s Chief Global Macro Strategist Joseph Kalish predicted that banks would be drawing down liquidity as the Treasury rebuilt the Treasury General Account, leaving less money for investments. That did in fact happen, but he notes that plenty of money from elsewhere rushed in to fill the void—“favorable global liquidity overwhelmed domestic liquidity challenges”—meaning stocks weren’t impacted the way he anticipated.

Last but not least, historically October has been a very strong month for stocks, those aforementioned scary examples notwithstanding.

Shel Silverstein’s Poem Day After Halloween ends with the lines “Will you pay for a shock,/ ‘Cause we’re quite overstocked/ On skeletons, spirits and haunts.” So far Bears have similarly found few takers for their pessimistic predictions, but only time will tell if there is an October scare in store.

Write to Teresa Rivas at teresa.rivas@barrons.com