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October Positivity

November 17, 2022

Following on the heels of negative returns in both August and September, October turned into a positive month.  The S&P 500 Index returned just over 8%, on a total return basis, the Russell 2000 Index returned just over 11%, and the NASDAQ, being tech heavy returned just under 4%.  This might come as a surprise considering that most people who know a bit about market history know that October has been the month when the market crashes.  

For example October 29, 1929 which was known as “Black Tuesday” and is often maligned as the end of the “Roaring 20’s” and blamed for ushering in the “Great Depression” that followed. Or October 19, 1987, known as “Black Monday”, a day in which the S&P 500 Index dropped over 20% in a day.2 Writers or pundits who have a story to tell will often bring up these examples and parade them around to make the point that October is a scary month, and that it has nothing to do with Halloween.  However, as we have mentioned before, cognitive biases often lead to errors in judgement.3

If we turn to the actual data once again, using the last 20 years (2002-2021) as our data set, we see that at least in recent years, while October has had some bad years (-16.8% in 2008) on average it is actually a fairly good month, returning just under 1.5% on average over the last 20 years, with that said it does tend to be fairly volatile having the highest standard deviation of all monthly returns.  As always this is not a prediction of future October returns or to say there will never be a crash in October again.  There are many factors that go into the market direction and returns, but only to say that paying attention to historical patterns and returns is probably worth the effort.


Data Source: Bloomberg Terminal
Chart Source: Stadion

Finally, looking forward to November, and using the S&P 500 data once again we see that November is historically the second strongest month on average returning right around 2% (following April which is just over 2.5% on average).  But just to say it once again, and at the risk of overstating the point, this is not a prediction that November will be positive, only to point out that it has been on average over the last 20 years.  There are many factors that could lead to “this time being different”.  The ongoing war in Ukraine, rising domestic interest rates, problems in China from the zero Covid policy and lock-downs. 

At Stadion, we believe a personalized approach to retirement investing is important and can guide participants to better retirement outcomes.4 That’s why we offer a managed account service that is designed to help participants achieve their retirement goals. Our team of investment professionals monitor participant accounts and base investment decisions on a disciplined process, not emotions. Our personalized approach is designed to consider information about each participant – their feelings about risk, current age, expected retirement date and other personal factors – and support participants’ journey towards their retirement goals.

Rob Dailey
Portfolio Management Analyst

1https://www.history.com/topics/great-depression/1929-stock-market-crash

2https://www.federalreservehistory.org/essays/stock-market-crash-of-1987

3https://www.foxbusiness.com/markets/octobers-record-market-crashes-makes-most-feared-month-financial-calendar-october-effect

4Alight, “Managed accounts: A personalized employee benefit for retirement and financial wellbeing”, 2022.

 

The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.

The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.

The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.

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