Is the stock market primed for an October swoon? Why investors

On Oct 1, 2021

While October is often considered a spooky month for investors, earning a bad reputation following the crashes of 1929, 1987 and the global financial crisis in 2008, investors shouldn’t be so fearful.

Since 1950, October ranks as the seventh-best month, while in the past 10 and 20 years, it ranks as the fourth-best, according to LPL Financial.

So while the 31-day stretch isn’t one of the best months of the year, it’s not the worst, either.

Still, some investors are jittery after September proved to be the worst month for the Dow Jones Industrial Average in nearly a year, while the S&P 500 recorded its biggest monthly loss since the start of the coronavirus pandemic.

More proof of October’s historic volatility came Friday when the Dow surged more than 480 points after drugmaker Merck announced progress in the development of an oral COVID-19 drug, which helped boost investor sentiment. Despite the gains, stocks still closed lower for the week, with the S&P 500 posting its worst weekly drop since February.

“October is known for some spectacular crashes and many expect bad things to happen again this year,” Ryan Detrick, chief market strategist at LPL Financial, said in a note to clients. “But the truth is this month is simply misunderstood, as historically it is about an average month.”

In fact, September has actually been the worst month for the stock market, averaging a 0.4% decline, according to the Stock Trader’s Almanac. And it lived up to its reputation again this year.

Why investors are spooked this month

Although Congress averted a government shutdown Thursday just hours before a midnight deadline, investors continue to wait for lawmakers to reach a deal on the national debt ceiling before the U.S. government runs out of money to pay its bills.

The debt ceiling is viewed as a greater economic threat if Congress fails to suspend or raise the U.S. borrowing limit before Oct. 18, which would result in a historic default and damage the financial system. While risk remains, analysts widely believe a deal will likely get done before then.

In addition to the debt ceiling debate in Washington, investors have already been weighing a string of concerns, including higher interest rates, the spread of the COVID-19 delta variant and indebted real estate developers in China.

This came as a shift had already taken place beneath the stock market’s surface in recent months, with fewer stocks participating in the market rally, a trend that is often viewed as a warning sign for investors that a potential pullback is coming.

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That weakness also signaled a pessimistic shift in investor attitudes after they remained largely euphoric in the market boom at the start of the year. There has been a wave of fear of missing out to cash in big on everything…