Investors have a longstanding love-hate relationship with the month of October.
Investors have a longstanding love-hate relationship with the month of October. Some of the more notorious market meltdowns have occurred, or at least escalated, in October; including 1978 (-9%), 1987 (-22%), and 2008 (-17%). And several of the largest one-day market declines, including Black Monday (1987) and Black Tuesday (1929), happened in October. Still, the S&P 500 (SPX) has had more double-digit gains in October than it has double-digit losses since 1950. In fact, October is often referred to as the "bear killer," as its end ushers in the beginning of the seasonally strong six months of the year. Highlighting the feast-or-famine outcomes October has become known for, amid the 2022 bear market, the S&P bottomed in October and rallied to finish the month with an 8% gain. The next year, the S&P finished the month down more than 3%, before reversing sharply in early November to finish the fourth quarter with a double-digit gain.
October has offered some of the more meaningful buying opportunities since Global Financial Crisis, including 2011 and 2015, when the S&P 500 rallied over 8% during the month. However, we don’t have to look back too far to see the negative side of the love-hate relationship with October. In 2018, the S&P 500 recorded its worst October since 2008, falling nearly 7%, the beginning of a 15% fourth quarter slide. Historically speaking, October has been positive more often than not, as the S&P 500 has logged gains in 59% of the Octobers between 1950 and 2024. The average return for the month during that period is +0.85%.
The histogram below is another visual that helps us wrap our hands around October's past behavior. It categorizes each October's return into a performance bracket, allowing us not only to see that there have been more up Octobers than down Octobers, but also the magnitude of returns. If we look at the extremes, notice that only five Octobers since 1950 have experienced a decline of more than -5%. The most common experience in October has been a gain in the range of 2.5% - 5%.
Finally, the graphic below illustrates the average daily returns of the S&P 500 Index in October going back to 1950, as well as the frequency of positive daily returns for each trading day. Historically, the month has both started and ended well, with the last four trading days of the month producing gains more times than not. The days in between have tended to produce a very different experience, with more substantial moves in both directions.
As we close out the third quarter, the S&P is up more than 10% for the year, possibly on track to notch its third consecutive year with a 20%+ gain for the first time since the late 1990s. Whether it reaches that milestone may hinge on whether this October is one to love or hate.
