It's apt that October is one of the scariest months for the stock market, with Halloween and all things horror. As we get closer to the depths of autumn and the weather becomes gloomier, so does sentiment on Wall Street.
In October, experienced investors may be aware that stocks have more than their fair share of ups and downs. Since World War II, the S&P 500's average volatility in October has been 35% higher than the average for the remaining 11 months of the year, Sam Stovall, the chief investment strategist at CFRA Research, tells Money.
The volatility of something, the ability for it to change quickly and unpredictably, is a bad word in the stock market. It can make investors uneasy at times, but the truth is that volatility is not an inherently bad thing, difficult as it may be to stomach in the moment.
Investors expect stocks to nosedive during the October effect, a phenomenon that occurs when investors expect stocks to nosedive during the month. s returns in October, likely because of the crashes of 1929 and 1987, Stovall says.
Many portfolios were reduced to ashes at these events, a spokesman said. The S&P 500 was down 21.8% in 1987, the largest one-month decline since 1945. Many investors in the US have started dreading the month of October.
It's an interesting oddity. But stocks tend to perform better in October than many investors think.
Sandven says in this timeframe, October will have an average S&P 500 return of 1.4%, higher than the average return of all but three other months. It demonstrates that volatility is not always bad, as it's not always always a bad thing. On the one hand, October has witnessed two of the worst months of U.S. stock market performance in 1929 and 1987, and on the other hand, as Sandven's figures show, the month has a lot of volatility, delivering unpredictable gains for stockholders, too.
Ross Mayfield, investment strategy analyst at Baird, tells Money that in fact, than October tends to be.
CFRA Research data shows that since 1945 the month of September brings in an average of 0.74%, compared to October's 1.4% gain.
Nobody knows how stocks will perform in any given month without a crystal ball, he said. Stock performance in August and September, however, is sometimes used to forecast the next months to come.
In 2023, the eighth and ninth months show promising signs of what could happen in October.
Don't get nervous just because October is descending on us. In June, stocks have shown signs of strength, entering a new bull market.
While some analysts see potential recessions and more Federal Reserve interest rate hikes, there are no predictions of a recession in 2023. Stovall also points out that the period between the Fed's last rate hike and first rate cut could be profitable. The S&P 500 has risen by an average of 13% during these pause periods between the last hike and first cut since 1990.
Timing the market is never a sound strategy. A variety of stocks, bonds, and mutual funds is the best way to achieve your long-term goals by maintaining a diversified portfolio of stocks, bonds, and mutual funds.
If you're investing for the long haul, volatility will iron itself out, and volatility shouldn't be a concern when looking at October's history of gains.
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