October evoked fear among investors as the Bank Panic of 1907, the Stock Market Crash of 1929, and Black Monday 1987 occurred during this timeframe. These previous stock market crashes, coupled with the devastating stock market selloffs during October 1997, 1978, 1979, 1989, and 2008, have many calling October a “jinx month” for stocks.
Some believe the market calamities during October can be traced to the self-fulfilling prophecy – if enough people believe it, then it must be true.
Understandably, the persistent selling since the late July 2023 stock market peak has many investors cautious of the future stock market outlook. A lot of things, including geopolitical, macroeconomic, and domestic, can still go wrong this year, resulting in another stock market selloff.
However, it is encouraging to know September, the worst month of the year, has ended as the market heads to the final three months of the year, which tend to be bullish from a seasonality perspective.
The perception of another bearish October may not be entirely correct. Yes, October will likely remain volatile, but it is not the worst month of the year. The dubious honor goes to September, the only month of the year that has produced negative returns over the long term.
Since the mid-1950s, SPX performances into the last quarter of the year and, specifically, toward the final year of the 4-year U.S. presidential election year cycle have been favorable.
Is the stock market setting up for another buying opportunity after the brutal market selling in September?
Over the past 20 years, October has generally been a favorable month for stocks, refuting the October “jinx month” label.
The benchmark large-cap S&P 500 Index (SPX) is up 60% of the time each October, averaging gains of 1.0% over the past 20 years. The blue-chip Dow Jones Industrial Average (INDU) also closed higher 60% of the time with average gains of 1.2%. The broad-based listed NYSE Composite Index (NYA) closed 60% higher, gaining 0.7% for the month.
The growth-related Nasdaq Composite Index (COMPQ) also showed favorable gains during October. Over the past 20 years, COMPQ closed higher 60% of the time with average gains of 1.2%. The mega-cap technology-laden Nasdaq 100 Index (NDX) recorded gains 60% of the time, with impressive gains of 1.6% for October.
The Mid-cap 400 Index (MID) recorded a higher close 65% of the time during October, with average gains of 0.7%. The Small-cap 600 Index (SML) also closed higher than it opened 65% of the time, with average gains of 0.8% for the month. Micro-cap markets, or the iShares Microcap ETF (IWC), closed higher 58% of the time but averaged losses of 0.1% for October.
Other favorable statistics include the following. The fourth quarter was one of the best quarters for stocks as they were up 89% of the time, averaging gains of 7.6%. Quarter one was up 78% of the time, averaging gains of 6.7%. Quarter two was up 78% of the time, averaging gains of 4.6%, and quarter three was up 89% of the time, averaging gains of 19.2%.
October is also famously called a bear market killer, resulting in stock market recoveries, including 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002, and 2011.
In addition, eight of the past thirteen stock market recoveries occurred during midterm election years, including the October 2022 stock market recovery.
This October will likely be another volatile month. However, it may be comforting to learn the start of the seasonality strength period can lead to another market bottom and a year-end rally.