What investors need to know about October’s complicated stock-market history

While September lived up to its reputation as a brutal month for stocks, October tends to be a “bear-market killer,” associated with historically strong returns, especially in midterm election years.

Skeptics, however, are warning investors that negative economic fundamentals could overwhelm seasonal trends as what’s traditionally the roughest period for equities comes to an end.

Rough stretch

U.S. stocks ended sharply lower on Friday, posting their worst skid in the first nine months of any year in two decades. The S&P 500
SPX,
-1.51%
recorded a monthly loss of 9.3%, its worst September performance since 2002. The Dow Jones Industrial Average
DJIA,
-1.71%
fell 8.8%, while the Nasdaq Composite
COMP,
-1.51%
on Friday pushed its total monthly loss to 10.5%, according to Dow Jones Market Data. 

Read: Stocks and bonds are ‘discounting for a disaster’ after the worst stretch for investors in 20 years

The indexes had booked modest gains in the first half of the month after investors fully priced in a large interest-rate hike at the FOMC meeting late September as August’s inflation data showed little sign of easing price pressures. However, the central bank’s more-hawkish-than-expected stance caused stocks to give up all those early September gains. The Dow entered its first bear market since March 2020 in the last week of the month, while the benchmark S&P slid to another 2022 low. 

See: It’s the worst September for stocks since 2008. What that means for October.

Bear markets and midterms

October’s track record may offer some comfort as it has been a turnaround month, or a “bear killer,” according to the data from Stock Trader’s Almanac. 

“Twelve post-WWII bear markets have ended in October: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002 and 2011 (S&P 500 declined 19.4%),” wrote Jeff Hirsch, editor of the Stock Trader’s Almanac, in a note on Thursday. “Seven of these years were midterm bottoms.”

Of course 2022 is also a midterm…

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