October’s Bad Reputation Masks Winning Track Record for Stocks

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(Bloomberg) -- For investors long global stocks, anxiety over holding them in October is probably misplaced.

Sure, it has a bad reputation. The worst month of the most recent bear market was October 2008 -- when an MSCI benchmark of shares around the world tumbled 20%. And the month has figured prominently in other massive sell-offs, including in 2018, when the same equity gauge plunged 7.6%.

But taking a broader view, on a worldwide basis over the 10 years through 2018, October has on average produced one percentage point better price gains than the mean for all months -- 1.67% versus 0.67% -- with just a bit more volatility.

October’s Bad Reputation Masks Winning Track Record for Stocks

“October gets a bad rap for being a poor month, mainly due to incredible drops in 1929, 1987, and 2008,” said Ryan Detrick, a senior market strategist for LPL Financial. “But over the past 20 years, October is actually the third-best month of the year” for the S&P 500 index.

The MSCI ACWI Index, a $46 trillion index of stocks in developed and emerging markets, is closely correlated with the S&P 500 Index, whose behavior has been studied to death.

Since 1928, the realized volatility of the S&P 500 in October has averaged more than 25% above what’s typical for the year, according to a Goldman Sachs Group Inc. study.

Goldman said that was probably due to it being a critical period for many investors and companies that “manage performance to calendar year-end” -- boosting volumes and volatility as earnings roll in, executives meet with analysts and guidance for the next year is dished out.

©2019 Bloomberg L.P.

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