In addition to Halloween, the month of October is known for creating spooks and scares among investors. When it comes to wealth suddenly disappearing, October can be quite frightful. The stock market crash of 1929 that led to the Great Depression occurred in October. So did the 22.6% plunge suffered by the Dow Jones industrial average in 1987 on “Black Monday.”
The scariest 19-day span during the 2008 financial crisis also went down in October, when the Dow plunged 2,675 points after investors fearing a financial collapse went on a panic-driven stock-selling spree that resulted in five of the 10 biggest daily point drops in the iconic Dow’s 123-year history.
There is little doubt that the U.S. market is long overdue for a normal pullback/correction of 10% or more as those normally occur about every year and a half and it’s been since the summer of 2011. Keep in mind that at the current market level, ten percent equates to about 1,700 points of the Dow. That may seem scarier than in the past, but remember that it’s still just ten percent.
On a positive note, in the past 20 years, October is the third-best-performing month, posting average gains of 1.8% and finishing up 70% of the time, according to Bespoke Investment Group.
Obviously, there is no way to know what to expect this month or any month from the stock market. The main reason the market has been going up the past several years is because the Federal Reserve has been flooding the markets with money in an attempt to get our feeble economy moving upward at a faster rate. I do not expect this to end any time soon.
What could spook the market might be a surprise move by our President. It could involve War, Immigration or making unilateral moves without Congress approval. We could also be hit again by some sort of terrorist attack or outbreak of Ebola or something else that is major, but unexpected.
With any of these, the drop will be temporary (weeks, months or a few years) so this is not a reason to panic. If the idea of “years” scares you too much – remember that the shorter your stock holding period is intended to be, the more you are a speculator rather than an investor.
This is a great time to review your holdings and make sure they are in line with your specific goals. Please let me know if you would like to discuss your portfolio.
If you are not currently a client, consider taking advantage of our FREE 2nd Opinion opportunity. We will review your holdings and give you feedback on:
The riskiness of your holdings
The overlap of the same holding by your different investments
The actual allocation and true diversification within your holdings
The expected returns of your portfolio based on what you own
Shell, Adam. It’s October: Is the stock market crash-proof? USA Today, 2012 October 2.