Should we fear October?
11 October 2017
October is considered by many to be the scariest month. This year, not only do we have Friday the 13th to contend with, in addition to the traditional Halloween mischief night and trick or treating, but seasoned investors may know that October is historically one of the most volatile months for stocks.
Additionally, for those of you who are superstitious, 2017 may bring extra dread if you believe the ‘curse of the number 7’. This relates to the theory that the month of October suffers especially significant drops, in particular, in years ending in the number 7.
The most well-known cases of this phenomenon were in 2007, 1997 and, of course the largest of drops, known as ‘Black Monday’, in 1987.
On 19th October it will be 30 years exactly since ‘Black Monday’, when the FTSE 100 index dropped by 12.2 per cent and the Dow Jones plummeted by almost 22 per cent in just one day, falling by 508 points. This still stands on record as the biggest single-day percentage decline.
However, despite the dramatic falls, the crash of 1987 was relatively short lived. During the next two trading days, the Dow gained nearly 300 points and the market actually finished the year above where it started.
The stock market is resilient and has recovered from difficult times. When considering the month it is worth remembering that past performance is not an indicator of future results. October is actually one of only 3 months in the year when the FTSE 100 tends to outperform the mid-cap FTSE 250. This could be due to the fact that October signals the end of the weak trading period, starting at the beginning of May, caused by the ‘Sell in May’ effect.
Additionally, on average, markets in October tend to rise in the first fortnight of the month before falling back. The last few days of the month tend to see a rise and the last trading day of the month usually has the best record of any month’s final trading day.
This year could be a positive one for October, as gains in the market have successfully navigated August and September, the worst two-month stretch of the year, based upon historical performance. If this trend continues in October we could see even stronger gains in the market going into 2018.
However, with the threat of a potential rise in interest rates, tightening monetary policy in the US and the conflict between the US and North Korea and other geopolitical factors it may be worth keeping a look out for signs of potential volatility.
Be prepared to react but keep a level head, don’t panic and think about the longer term. Having confidence in your portfolio and holding well-thought-out investments with long-term strategies should help you to stay calm when others may not.
Additionally, if stocks do fall in October, as history suggests, then this could actually present buying opportunities, especially if stocks become attractively valued.
Of course, if you find that you lack the time or opportunity to monitor your portfolio then you may wish to entrust the running of your portfolio to a qualified Investment Manager, obviously I would be only to happy to help out. Please contact me on 07711 710 628 or Rupert.firstname.lastname@example.org.
Please note that investments can fall as well as rise in value and past performance is not an indicator of future results.