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Should investors fear ‘red’ October

Posted by Adrian Lowcock in Press releases category on 04 Oct 19

  • 7 of the 11 worst one day falls have happened in October
  • On average October is the 5th best month performing month of the year
Largest one day falls in the FTSE 100

 Date One day Days to recover*
20-Oct-87 -12.22% 469
19-Oct-87 -10.84% 648
10-Oct-08 -8.85% 4
06-Oct-08 -7.85% 338
15-Oct-08 -7.16% 19
26-Oct-87 -6.19% 128
11-Sep-01 -5.72% 24
06-Nov-08 -5.70% 57
22-Oct-87 -5.69% 462
21-Jan-08 -5.48% 11
15-Jul-02 -5.44% 3
Source: Willis Owen. *None of the falls marked the bottom of the market

October has a bad reputation in the investment world, but is it deserved?

The tenth month of the year seems to attractive volatility in markets, with seven of the worst 11 one-day falls for the FTSE 100 happening in October.

Each individual market sell off has different underlying causes behind it, but there is little to explain why they happen in October. It’s poor reputation dates back to the beginning of the 20th Century with the Panic of 1907 in the US. This was followed by the 1929 Crash, and Black Monday in 1987 as automated systems went overdrive. More recently it also saw the worst single day stockmarket performance of the Global Financial Crisis when UK stocks fell 8.85%.

However, whilst it is unavoidable that October does contain the worst individual days of stockmarket performance, that is very much concentrated in two events – The 87 crash and the fallout of the Global Financial Crisis.  These two events accounted for all seven of October’s worst performing days. 

Should investors fear October this year? 

Given that October’s bad rep is primarily linked to two unique events it would be a dangerous strategy to use this data to base your investment decisions on.

This year there are plenty of issues for investors to be concerned about, including concerns of a global recession, and weak economic data from the US. However, last Wednesday’s sell-off doesn’t make the top 10 worst one-day falls, and with US-China trade negotiations on 10th October and the Fed meeting at the end of the month, markets could see a reaction if we get positive outcomes from either event.

The danger of selling out in October is compounded by the fact that, for the FTSE 100, October is one of the better months on average for returns. Over the last 35 years, October, on average, has been the fifth best performing month for the FTSE 100, suggesting it would be risky to sell-out prematurely.

It can be tempting to believe in patterns in stockmarkets, especially following last year’s sell-off in the fourth quarter and fears that it is being repeated now.

However, considering October has on average delivered returns of 0.72% for FTSE 100 investors, it is a risky strategy indeed to base your investment decisions on.