The “October Surprise” – Should Traders be Spooked?
Many traders and investors fear October, and why not? On October 19th 1987, the Dow Jones Industrial Index lost a whopping 22%. This date became forever known Black Monday. And way back in 1929 the stock market crashed in October. In fact, we had October selloffs in 1937, 1978 and 1987. So will October of 2020 be as spooky as many think?
As you may have noticed, many of those October selloffs occurred quite while back. We decided to look at the October returns of the S&P 500 more recently in order to determine if October should really be feared.
This table shows the average October returns for the S&P 500 Index on more recent data. Looking at the last twenty years, we see that the index actually shows a gain of 1.2% in October. The last ten years looks even stronger, with an average return of 2%. And over the last five years, the S&P 500 has shown an average return of 1.1%.
So based on this data, we don’t see much evidence for traders to fear an October Surprise. In fact, we found that September is actually the most bearish month of the year, and 2020 definitely followed suite. However, as you know we are in the of the middle of a pandemic and heading into a contentious US election season. So even though October has recently been a bullish month, this year we may want to keep our eyes peeled for potential market tricks or treats!
Jeff Drake
True Edge Trading
