Mark Twain once said, “OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”
While Mr. Twain was correct that October has been the month for some memorable single day stock market declines (see 10/24/1929 Great Depression and 10/19/1987 Black Monday), historically the entire month of October has been a positive month and generally the start of a seasonally good period for the equity markets.
© Jeffrey A. Hirsch, Stock Trader’s Almanac.
The equity markets ended September 2014 on a down note, and are opening October 2014 on the downside as well. I think we could finally be getting the correction I have been expecting. From the S&P 500 all-time closing high of 2,011.36 set on 9/18/14, a 10% decline would take it to 1,810. I’m not sure it will fall that far. Right now I feel it will hold at the 1,900 level and if it doesn’t hold there, then I am looking at 1,850.
There are several reasons I think the downside will be limited:
- The US economy, while not robust, continues its slow but steady growth.
- The Federal Reserve remains firmly committed to supporting the economic recovery.
- Portfolio managers have been underperforming so far this year – they will be looking to improve their results before year-end so they can earn their bonuses.
- The favorable season for stocks as depicted above.
- There is still a tremendous amount of cash on the sidelines and in this low interest rate environment cash earns no return.
Finally, major equity market corrections have historically occurred when interest rates are rising and the yield curve is inverted (an inverted yield curve is when short-term interest rates are higher than long-term interest rates). Interest rates have fallen so far this year from 2.99% (marketwatch.com) on January 2, 2014 to 2.39% (marketwatch.com) on October 1, 2014 on the US 10year Treasury, and short-term rates @ 0.10% (13 week US T-Bill) on October 2, 2014 (marketwatch.com) are well below the 10 year rate.
In summary, I expect October to be a volatile month in the financial markets but that the outlook going out to year-end 2014 is positive.
October Calendar of Events (comments and additions for future months always welcome)
October is Breast Cancer Awareness Month. I donated to a fundraiser my daughter Ryan is running at her gym “Barbells for Boobs”. What are you doing to support this cause?
October 4th Yom Kippur
October 13th Columbus Day
October 16th My granddaughter Naomi’s 7th Birthday
October 24th United Nations Day
October 31st Halloween
I hope you find this report useful. Please feel free to pass it along to anyone you feel could benefit from the information.
Sources: International Strategy and Investments, Fidelity Investments.
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