With only three days into October, the S&P 500 Index has declined 0.26%, Dow Jones Industrial Average has fallen 0.03%, and Nasdaq Composite Index has lost 0.91%. Key sectors and momentum/growth stocks have suffered massive sell-offs already.
October is known as the jinx month for stocks because of the perception that stock market crashes occurred during October.
So, is October indeed a jinxed month for stocks?
Stock market crashes have occurred in October, including 1929, 1978, 1979, 1987, 1989, 1997, and 2008. Market perception can be a powerful phenomenon. It can become a self-fulling prophecy if enough people believe it is true. Although stocks can be volatile in October, it is not the worst month of the year. The honor of the worst month goes to September, coinciding with the end of summer and third quarter window dressing.
Since 1950, October tends to be positive for SPX, averaging gains of around 0.80%. It is the eighth-worst month of the year. However, the October seasonality statistics have improved in recent years. For the past twenty years, SPX has returned on the average gains of 1.0% during October. It ties March as the fourth-best month of the year.
Despite eleven major stock market crashes during the month, October is also known as a bear market killer as the month witnessed major market bottoms and subsequent market reversals. For example, 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2002, and 2011. October also marks the end to the worst-performing six months for SPX (i.e., May to October).
Like SPX, the Nasdaq Composite Index suffers its worst month of the year during September. In the past 40-years, COMPQ has declined on an average of -0.5% during September. October is the sixth-worst month performing month of the year for COMPQ, with gains of 0.6%. The tide has also changed for COMPQ. In the past 20-years, the technology-dominated/growth-related index has returned an average of 1.8% during October, placing it as the third-best month of the year, just behind April (+2.3%) and November (+2.2%).
Last October was challenging as SPX declined -2.77% for the month. It was one of the worst Octobers in recent years. The strong selling in stocks may continue and can worsen into the end of the month.
However, astute and experienced investors recognize that it is also a great time to buy stocks, especially in the battered quality technology and growth names that have succumbed to unwarranted selling over the past month or so.
Although the structural bull rally over the past eight years may be maturing, favorable seasonal tendencies may soon ignite another stock market rally.