Why the October Pain may soon be over
October started off in true October fashion…with a right hook to the jaw followed by a left cross right in the gut. From the market high’s reached on October 3rd, the S&P 500 took a beating, dropping almost 8% while the Russell 2000 fell almost 10%. Even though experienced investors knew that it was just a simple correction, rapid violent drops like that are scary and give you that nauseous feeling.
Stocks always seem to have their worst sell offs in October. The crash of 1929 came during October, as did the 1987 crash, the stock market sell-offs of 1978 and 1979, Friday the 13th in 1989, and the painful 733 point drop on Oct. 15, 2008.
However, there are reasons to be cheerful. According to ‘Stock Traders Almanac’, there have also been big turnarounds in October, particularly in midterm election years. Just like we have this year! In fact, 12 post World War II bear markets have come to an end in October, including the most recent, 1987, 1998, 2001, 2002 and 2011.
Eight of the 12 were midterm bottoms. “Midterm election years Octobers are downright stellar thanks to the major turnarounds,” noted Jeffrey Hirsch, editor-in-chief of Stock Traders Almanac. “These things always surprise everybody or else they wouldn’t look like this,” he said. “It’s not unprecedented.. It’s definitely something that could easily turn around.”
The October period is the beginning of what Stock Traders Almanac calls a “sweet spot,” the three quarter period that includes the fourth quarter of midterm year and the first and second quarter of the pre-presidential election year. The Dow averages gains of 20.4 percent in those periods and the S&P is up an average 21 percent.
Bottom line is that the recent volatility and current correction just looks, feels and smells like a normal and much needed correction. They are always painful to live through but usually quickly forgotten when things turn around.
Of course things are different for retirement investors. You not only can’t afford big drops in your portfolio because you don’t have the time to make it back but let’s not mention what it does to you mentally and physically.
This market has been good but who knows when it will let go. Remember, markets start to drop when things look the best just as they bottom when things look the worst…and things look pretty darn good now. Therefore, it’s critical to take the time to do the “planning”. Create a Retirement Master plan so you tell your money exactly what to do, so you invest properly, tactically not passively, to get the very best returns, but with the least risk possible. It’s what we help our clients do every day.
If you would like to learn more about our disciplined investment and planning approach that manages risk and delivers returns, while being conscious of forward-looking tax-strategies and retirement income opportunities, contact us today for a free no obligation consultation.
Cheers -Keith Springer
P.S. “Invest for need, not for greed!™”