On Wednesday, the US stock market staged a V-shaped reversal, with major stock indexes either turning up or erasing most of their losses at noon: the S&P 500 index, which opened slightly higher, quickly turned down in the early session, falling 1.6% at one point, but recovered to rise in the afternoon session. The Nasdaq, which fell 1.4% in the early session, rose more than 1% in the afternoon session, and the Dow Jones Industrial Average, which fell more than 740 points in the early session, hit a new intraday high of only 33 points. Although the S&P and Nasdaq have rebounded in the first two trading days of this week, the recent trend of the US stock market over the past two months may not be optimistic based on historical records.

The sharp fall at the beginning of this month has made people more impressed with the "September Curse". Mark Higgins, Senior Vice President of Index Fund Advisors and author of "Investing in U.S. Financial History: Understanding the Past to Forecast the Future", also pointed out that September and October have historically been poor-performing months for the US stock market. The most severe stock market panics on Wall Street often occur in late summer and early autumn, a pattern that can be traced back to the 19th century. Some famous examples include Black Friday in 1869, the Panic of 1873, and the Panic of 1907.

Why do US stocks often perform poorly in September and October? Higgins explains that this is a by-product of the weaknesses of the US financial system in the past. In simple terms, it is an old problem that existed before the birth of the Federal Reserve a century ago. At that time, the United States was in an agricultural financing cycle and the US dollar lacked elasticity, making late summer and early autumn a particularly unstable period in the financial market.

Before the US Congress passed the Federal Reserve Act in 1913 and introduced the central banking system, the United States had limited ability to adjust the money supply according to market conditions. In the 19th century, the US economy was still heavily dependent on agricultural production. In the first eight months of each year, domestic farmers had limited demand for funds, so the surplus funds held by state banks were transferred to New York banks or trusts companies in search of higher returns. When the harvest season in August arrived, these state banks began to withdraw funds from New York because farmers were withdrawing funds from their personal accounts to support the transactions needed to transport crops to the market.

The agricultural financing cycle led to a long-term cash shortage in New York City in the autumn. If this cash shortage happens to coincide with a financial shock, the financial system has little flexibility to prevent a stock market panic.

Higgins said that compared to the frequency, intensity, and degree of suffering from financial panics in the 19th century, the financial market has become more stable since the establishment of the Federal Reserve. Overall, since the end of 1914 when the Federal Reserve began operations, the US financial system has become more stable. However, during this period, the Federal Reserve has also made some mistakes, with the most embarrassing example being its failure to prevent the spread of bank failures in the 1930s.

Nowadays, the United States is no longer an agricultural-based country, so why is the stock market still weak in September and October? Higgins believes that people tend to be afraid of things that have happened in the past, even if they don't remember why the panics occurred. The autumn panic may have occurred multiple times, to the point where it has become a self-fulfilling prophecy. In other words, people expect it to happen and because they expect it to happen, their behavior of reducing risk in late summer and early autumn makes it more likely to happen. Higgins said he knows this may sound a bit exaggerated, but it could very well be true.

Editor/Emily