“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” —Mark Twain
Well, it was bound to end eventually, but the S&P 500 Index will finish September in the red, ending an incredible seven-month win streak. As we noted last month, these long win streaks actually tend to be quite bullish for future returns, with the S&P 500 higher six months later 13 out of 14 times. Yes, stocks were down some in September, but this still bodes well for the near-term.
Speaking of the near term, here comes October. As Marc Twain explained many years ago, October has long been a source of anxiety for stock investors. “October is known for some spectacular crashes and many expect bad things to happen again this year. 1929, 1987, and 2008 all come to mind when we think about this month,” explained LPL Financial Chief Market Strategist Ryan Detrick. “But the truth is this month is simply misunderstood, as historically it is about an average month.”
As the LPL Chart of the Day shows, since 1950, October ranks as the seventh best month, while the past 10 and 20 years it ranks as the fourth best month. In a post-election year it comes in fifth. So October clearly isn’t one of the best months of the year, but by no means is it the worst either.
Now, let’s be very clear though, October is known for volatility. No month has seen more 1% moves (up or down) than October, with some of the largest 1-day moves (both up and down) taking place this month. Heck, the S&P 500 hasn’t had a 5% pullback all year (the average year sees about three) and the last one was nearly a full year ago, one of the longest such streaks ever. Not to mention the S&P 500 has now gone an incredible 317 trading days in a row above its 200-day moving average, one of the longest streaks ever. What we are getting at is a 5-7% pullback could potentially come at any time given we haven’t had one in so long.
