Historically, September and October have been weak months for the stock market.

What are the reasons behind September and October being historically weak for stocks? I sought answers from Mark Higgins, senior vice president at Index Fund Advisors and author of the book, Investing in U.S. Financial History: Understanding the Past to Forecast the Future.

The answers have been edited for clarity.

Are September and October consistently weak months for stocks?

Wall Street's most severe panics have historically occurred during late summer and early autumn months, with notable examples such as Black Friday of 1869, the Panic of 1873, and the Panic of 1907.

But why September and October?

The inability of the U.S. to adjust the money supply in response to market conditions was a result of a weakness in the financial system prior to the establishment of a central banking system with the passage of the Federal Reserve Act of 1913.

The agricultural financing cycle posed a risky period for the U.S. economy in the late summer and early autumn months, as the inelasticity of the currency made it difficult for farmers to access the funds they needed. In the 1800s, the U.S. economy heavily relied on agricultural production, and farmers had a limited need for capital during the first eight months of the year. As a result, excess funds held on deposit in state banks were sent to New York banks or trust companies to earn a higher rate of return.

In August, as farmers drew on their accounts to fund transactions required to ship crops to market, state banks began withdrawing their capital from New York.

During autumn months in New York City, the agricultural financing cycle led to recurring cash shortages. In the event of a financial shock, the system lacked flexibility to prevent a panic.

How did the government respond to these panics?

The limited ability of the government to respond to financial crises was the main reason for the passage of the Federal Reserve Act of 1913. The Act granted the Fed the power to act as a lender of last resort during financial emergencies. Prior to the Act, leading financiers, including J.P. Morgan, had to rely on private capital to solve financial problems. After the U.S. narrowly avoided a catastrophic financial collapse during the Panic of 1907, there was enough political support for the return of a central banking system in the United States.

Did the creation of the Federal Reserve provide more stability to markets?

Since the Federal Reserve's establishment in 1914, the U.S. financial system has been more stable, with the Fed making a few mistakes, such as its failure to stop the contagion of bank failures in the 1930s.

Despite the fact that the U.S. economy is no longer primarily agricultural, September and October remain weak months.

People often experience fear of events that have occurred in the past, even if they cannot recall the source of their fear. This may be due to the repetition of certain events, which can create a self-fulfilling prophecy. For instance, the repeated occurrence of fall panics may cause individuals to expect them and behave in ways that increase the likelihood of their occurrence. Although this may seem like a far-fetched idea, it is plausible that this phenomenon actually exists.