Perspective for October Markets: Redux

Monday, October 19, 2015

By Sheila Jamison & Rich Jamison

Repeating our phrasing from this time in 2014, the month of October has long engendered a “love, hate” relationship with investors. Some of the more notorious market meltdowns have occurred, or at least escalated, in October. This includes the most notorious ones of 1929, 1987 and 2008. 

Line graph about the October returns for the S&P 500 Index from 1950-2014

Source: Dorsey-Wright Associates

It’s Not All Bad News

On the other hand, the month is commonly referred to as the “bear killer,” as with its end also comes the beginning of the seasonally strong 6-months of the calendar year. Historically, the month has both started and ended well with the first and last 4 sessions producing gains more times than not. Everything in between has tended to produce a very different experience, with more substantial moves in both directions.

Last year, we saw a rather stern drop in the indexes for the early part of the month. This year, we’ve seen a nice climb instead. Now we’re only half way through October and some of the drops haven’t felt good. But it’s looking a whole lot better overall than it felt as it went by.

Smiley face graph showing the S&P 500 index from Oct 1 - Oct 16, 2015

Source: Yahoo Finance

What’s to come is unknown … and we’ve got a group in DC that isn’t making any of us really comfortable.


Looking at the average daily returns and the frequency of positive daily returns for each trading day, I would conclude that October is volatile. Still, since 1950, the S&P 500 Index has had more double-digit gains than double-digit losses. In fact, the month is commonly referred to as the "bear killer," as with its end also comes the beginning of the seasonally strong six-months of the calendar year.

October has proven to offer some of the more meaningful buying opportunities within the current long-term bull market. For example, last year it coincided with the bottom of the Ebola Crisis. This year it’s on the heels of a generally forgettable Q3 when the US Equity markets fell nearly 7% over that three-month stretch.

More Positive than Negative

For all its volatility over the years, October is more commonly a positive month for the market than it is a loss generator. In fact, the market is up 60% of the time in October with an average return of +0.82%. See the chart below for the average daily return and the frequency of positive daily returns for each trading day for the S&P 500 in October going back to 1950.

Love and Hate chart re: October and the S&P 500

Source: Dorsey-Wright Associates

At this time, the NYSE Bullish Percent Index is Bull Confirmed at 40%, the average stock is still slightly oversold on its weekly distribution and US Equities remain the top-ranked asset class in our Dynamic Asset Level Investing model. That is, we are warming up the quarterback and getting the offense ready to take the field.

There is more to come … and we’ll report to you as circumstances dictate. Stay tuned and in touch.

Sources: Data from Yahoo Finance and Dorsey Wright Associates. Daily Equity Report. Staff. Dorseywright.com. October 9, 2015.