Market Beat: Is October really the worst month for stocks?
October 7, 2011
TRUCKEE, Calif. andamp;#8212; Stocks ended a volatile quarter on a down note last week. Last Friday, the Dow dropped more than 2 percent, finishing the quarter down 12 percent, the largest drop since the credit crisis. Last quarter was one of the most volatile ever for the markets. The month of August saw moves of more than 400 Dow points on four consecutive days. The quarter saw 18 days with moves of more than 200 points for the Dow.Most investors are aware of the crash of 1929, and many remember the crash of 1987, both of which occurred in October. In October of 1997, the Dow saw a 550-point one-day drop and the Long Term Capital Management/Russian Ruble shock happened in October.Should investors take their money out of the market and stuff it under their mattress this month to wait and see what happens?Before you do, an analytical look at the month of October historically reveals some interesting facts. Since 1958, October is the sixth best month for the market with an average gain of 0.9 percent for the Sandamp;P 500. Sixty percent of all Octobers have recorded positive returns.According to the Stock Traderandamp;#8217;s Almanac, statistically, October is a month that has a history of ending bear markets. The bear markets of 1946, 1957, 1906, 1962, 1966, 1974, 1987, 1990, 1998 and 2002 all ended in October. November, December and January have also tended to be three of the four best months of the year.Based on statistical data, historically October has proven to be one of the best months to invest. What an individual investor should do now depends entirely on their individual situation. Factors such as age, risk tolerance, dollar amount invested as a percent of net worth, etc., should all be taken into consideration. No one knows what will happen the remainder of the year. The Euro zone needs to get its house in order and there is a possibility of a global economic slowdown. Investors who stay in the market during turbulent times can always consider using hedges such as: index put options, inverse ETFs and volatility based ETFs.Kenneth Roberts, a Truckee-based Registered Investment Advisor, has been in the securities business since 1992, has worked as a branch manager for a major Wall Street firm and is currently a portfolio manager for Fusion Asset Management. Information on his money management service can be found at http://www.fusiontargetretirement.com or by calling 775-675-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.