The stock market could be poised for an October treat

  • By Vito J. Racanelli,
  • Barron's
  • Investing Strategies
  • Investing in Stocks
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  • Stocks
  • Investing Strategies
  • Investing in Stocks
  • Market Analysis
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The average investor probably thinks October is the worst month for U.S. stocks, since some of the worst meltdowns in U.S. history have happened during those 31 days. But it’s September that is statistically the scariest month for stocks and investors.

Over the past 100 years, the Dow Jones Industrial Average (.DJI) has produced an average 1.1% drop in the month of September, with positive returns just 41% of the time, according to data from Bespoke Investment Group.

October, on the other hand, is a happier time for investors, producing a 0.4% average rise, with positive returns two-thirds of the time. And in the past two decades, the Dow has gained an average 2.5% in October, the best performance of any month on the calendar.

Indeed, according to BIG, had you owned the S&P 500 (.SPX) only during the month of October over the past 50 years, a $100 investment would now be $150, the fifth-best month over that half-century. Which is the strongest month? Had you invested that $100 only in December—a month which, as veteran investors know, often features a so-called Santa Claus rally—you would have earned a $201 return.

The weakest month, as noted, has been September, where $100 would now be worth just $70. Indeed, over a century, it is the only negative month on average. That alone is a testament to the power of the U.S. stock market to earn returns over long periods.

Ironically, since 1983, October has been a good month when that year’s market performance was negative through September. In those cases it rose 1.7%, with positive returns two-thirds of the time.

In the 14 years when the market was up less than 10% through September—as it is now—the market rose 2.5% in October, with positive returns nearly 80% of the time.

Interestingly enough, when the S&P 500 has been up by a double-digit percentage heading into October, the month became a downer, with an average decline of 1.2%.

This has been a very unusual September, with the Dow up 2% for the month and the S&P 500 index up 0.5%. So far during 2018, the venerable Dow is up 7%, while the broad-market S&P 500 is up 9%.

If history is a reliable guide, then October should be a treat for investors not a trick.

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