Two faces of October: Crash-prone but 'bear killer'
Adam Shell, USA TODAY October gets a bad rap on Wall Street. Blame it on stock market crashes in 1929, 1987 and 2008 that all happened to strike in October. But despite being known as a "jinx month," October is also known as a "bear killer" — or the time of the year when weak stock markets stop going down, according to The Stock Trader's Almanac.
The second point could prove to be a comfort to stock investors, who have been shaken recently by the first stock market "correction," or 10%-plus drop, in four years. Adding to the sense of angst: increasingly wild price swings on a daily basis that have put a scare in even the most rational long-term investors.
Barring a big market drop in the four weeks — the Standard & Poor's 500 stock index is down around 9% from its May peak and far from a 20% drop or bear market — this October won't need to be a bear killer. But Wall Street is hoping that the month lives up to its reputation as a downdraft "stopper" when the market turns up and never looks back from its recent trough on Aug. 25, when it was down 12.4% from its peak.
The worst October in history occurred after the 1987 crash, when the S&P 500 stock index plunged 21.8%, the Almanac says. But October has had big up and down days as well. Its worst day was on Oct. 19, 1987, when it plunged 20.5%, a record one-day percentage drop. On the positive side of the ledger, the broad U.S. stock index rallied 11.6% on Oct. 13, 2008, during a volatile period in the 2008 financial crisis.
This October, stocks will be driven by the third-quarter earnings season. And while Friday's weak September jobs report and disappointing August factory report, coupled with Thursday's two-year low reading on manufacturing, suggest the economy's not firing on all cylinders, the earnings bar has been set very low. Wall Street analysts have been slashing profit estimates, which gives corporate America a good shot at topping lowered forecasts.
The weak September jobs report all but keeps the Federal Reserve on the sidelines when it meets on interest rate policy later this month. But the question of when — and if — the Fed will hike rates for the first time in nearly a decade is likely to keep investors guessing and markets volatile. The Fed meets in December as well.
October, of course, also marks the last month in what historically has been the worst six-month period for stock market performance. As a result, the market might start pricing in better days ahead, a seasonal push that could give Wall Street some renewed buying power after a multi-week stretch where many investors engaged in a "buyer's strike."
Historically, "October is a great time to buy," Almanac editor Jeffrey Hirsch noted in the 2015 edition. The Almanac notes that October has "turned the tide" in a dozen post-World War II bear markets.
Overall, October is in the middle of the pack in terms of monthly performance, ranking just seventh for the S&P 500 stock index, posting average gains of 0.8%, according to the Almanac.
While markets are still volatile and headwinds like China's slowdown and the commodities crash won't go away overnight, investor pessimism is so high that there's a chance much of the bad news is already priced in. And that could pave the way for a market rebound.
"The last time we had this level of pessimism, back in December 2012, the S&P 500 rallied 13% over the following six months," David Rosenberg, chief strategist at Gluskin Sheff, told clients.
Posted by: sarah_oz@yahoo.com
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