It's apt that October - a month associated with Halloween and all things horror - is one of the scariest months for the stock market. As we get into the depths of autumn, and the weather gets gloomier, so does sentiment on Wall Street.
In October, experienced investors may be accustomed to the fact 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, chief investment strategist at CFRA Research, tells Money.
The stock market is not often characterized by volatility, the ability for something to change quickly and unpredictably. It can be understandably embarrassing for investors, but the truth is that volatility is not an inherently bad thing, hard as it may be to stomach in the moment.
Investors expect stocks to nosedive during the month of October, a phenomenon known as the October effect. s returns in October, likely because of the crashes of 1929 and 1987, Stovall says.
The events resulted in a number of portfolios being reduced to ashes. The 1987 crash saw the S&P 500 drop 21.8%, which is the largest single-month decline since 1945. Many American investors have come to dread October as a result.
It's an interesting oddity. In actuality, stocks tend to perform better in October than many investors think.
In this timeframe, Sandven expects an average S&P 500 return of 1.4%, up from the average return of all but three other months. This shows that volatility isn't always a bad thing. On one hand, October has seen two of the worst months of stock market performance in U.S. history in 1929 and 1987, and 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 in the future, without a crystal ball. While stock performance in August and September is sometimes used to forecast the next months to come, stock performance in August and September is sometimes used to forecast the next months to come.
In 2023, the eighth and ninth months of the year show promising signs of what could happen in October.
All said, don't get nervous just because October is descending on us. In June, stocks have shown signs of strength, entering a new bull market.
Although recessions and more Fed interest rate hikes may sound glum, plenty of analysts expect no recession in 2023. Stovall adds, The period between the Fed's last rate hike and first rate cut could be profitable. The S&P 500 has increased 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. If you want to maintain a diversified portfolio of stocks, bonds, and mutual funds, the best course of action is to keep a variety of stocks, bonds, and mutual funds in mind.
While volatility should not be a significant issue when looking at October's past of gains, it will iron itself out over time, and if you're investing for the long term, that volatility will iron itself out.
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