October’s Market Ride

Her eyes lit up the moment we walked in the door.

My 5-year-old daughter was excitedly running around trying to see as much as she could. She wanted to take home everything in the store and was upset when we had to leave. You would have thought we just walked into a Disney store.

Instead, our local Spirit Halloween store finally opened.

It’s kind of weird for her age, but she loves the spooky outfits and surprise animatronics set up throughout the store. For her, it’s a quick adrenaline rush with a mix of excitement and fear.

For investors, the thought of the Halloween store opening again is just a sign we are finally entering the most dreaded month for the stock market all year — October.

Today’s October 1, and if you don’t know why investors are clamoring about this month, then you need to pay attention. This year promises to have a few surprises in store for investors who aren’t prepared…

October’s Wild Past

October has had historical moments that have helped it achieve the title of most volatile month in the stock market over the last century.

Last Friday, I let you know volatility won’t stay dormant for long. But I don’t see volatility coming back this month either.

In October 1987, the market experienced the now infamous Black Monday, where the Dow shed nearly 22% on a single day.

In October 2008, the Dow went through several 1,000-point swings as we fell into the financial crisis.

But, even excluding these two outliers, October remains the most volatile month.

It experienced a market collapse in October 1929, wild swings in 1978 and 1979, and October 2007 was the peak right before the global financial crisis.

Now, you would think that this volatility would correlate with October being the worst performing month as well.

That wasn’t the case.

It’s actually the eighth best month.

That’s not spectacular. It’s only fourth from the bottom. But when you factor in how pivotal that month has been, it’s pretty remarkable.

And this year, you want to keep your capital invested during October to continue to benefit.

Nothing Scary About October

A few weeks ago, I warned you that the third-quarter earnings reports could diverge from what analysts are expecting. We have more companies than average lowering guidance, but fewer analyst lower their expectations. This is setting up for a short-term dip, and it could come in October.

But don’t let it spook you.

Earlier this year, when we were going into the weakest six-month period for the stock market — May through October — I told you not to sell in May and go away.

And it paid off big time.

The market has steadily climbed during this period and is up about 10%. That’s what the S&P 500 averages on a yearly basis!

I bring this up because we are in the last month of that six-month period.

That’s why you’re probably seeing several articles, including this one, talk about the history of volatility during the month of October.

Last year, I also wrote an article on the volatile month. At the time, I said to it was a likely period for a market correction. I was three months off. That correction began in late January.

But now that a much-needed correction is out of the way, I don’t see volatility in the month being an issue.

Just as October ends the worst six-month period for stocks, November begins the best six-month period.

You don’t want to sell with the momentum that has been building over these last six months and helped to push the S&P 500 to new highs.

New highs are extremely bullish.

So, you can ignore all the fear built around the month of October this year and continue to rake in profits.

Regards,