October's "optics" problem

  • October has always been volatile, but crashes are rare
  • The month has become more bullish in recent years
  • Intra-month sell-offs have often reversed

As they get ready to wrap up a September that looks determined to add to the legacy of the Most Bearish Month of the Year, traders and investors are staring down what has historically been the Most Volatile Month of the Year.

That’s most volatile, not most bearish.

It’s an important distinction, because despite a relative handful of infamous October sell-offs (1929, 1987, 2008), the bottom line is that since 1960, the S&P 500’s (SPX) median October return has been 1.4%—the third-best of all months of the year.1 The following chart shows 37 of the past 61 Octobers have been positive—a 61% winning percentage that ranks fourth over the past six decades:

Chart 1: S&P 500 October returns, 1960–2020. A few big losers, but mostly winners.

Source (data): Power E*TRADE (For illustrative purposes. Not a recommendation.)

October also has the distinction of having the most double-digit percentage gains (three) of any month since 1960, and is tied with November for the most returns of 5% or more (10). Also, October has been even more bullish over the past 20 years, boasting the second-highest median return (1.9%) and the third-highest winning percentage (65%).

But it’s also true that those above-average returns have often been accompanied by above-average volatility. Regardless of the period, the market’s price swings in October have consistently been among the largest of any month. Since 1991, for example, the SPX’s median price move from September’s close to October’s high or low is 6.5%—larger than any other month.

As recently as 2018, the SPX suffered a 7% drop in October. But there’s a difference between a month that loses ground overall and one that experiences a sell-off and recovers.

The chart below compares the SPX’s October intramonth performance for three 20-year periods: 1961–1980 (blue), 1981–2000 (red), and 2001–2020 (green). The lines represent the SPX’s median return from the last trading day of September to each successive trading day of October, providing a picture of the market’s typical path throughout the month for these different time windows:2

Chart 2: S&P 500 October intramonth performance. October more bullish over past 20 years.

Source (data): Power E*TRADE (For illustrative purposes. Not a recommendation.)

Despite the obvious similarities between the periods, the chart highlights October’s increased bullishness over the most recent 20 years. The SPX not only typically gained more than it did in the earlier periods, but it tended to rally throughout a larger portion of the month, with its return typically peaking around the 16th trading day of the month.

While there’s no denying the reality of October volatility, two key things to remember are that the crashes the month has become associated with have been few and far between, and that the market has often recovered from its more run-of-the-mill sell-offs before the month has ended.

So, while traders and investors familiar with October only by reputation may think of it as a bearish month, those who scratch below the surface may see it as a volatile month—and those who dig a little deeper may come to think of it as an “elastic” month—one that has often bounced back from its volatility.

Market Mover Update: SunPower (SPWR) started off the week by rallying more than 6% intraday and closing at its highest level since August 12 (see “Clean energy searches for greener pastures”).

Oil kept the heat on: November WTI crude oil (CLX1) rallied for a fifth-straight day on Monday, hitting a new contract high of $75.73/barrel.

Today’s numbers include (all times ET): Advance International Trade in Goods (8:30 a.m.), Advance Retail Inventories (8:30 a.m.), Advance Wholesale Inventories (8:30 a.m.), Case-Shiller Home Price Index (9 a.m.), FHFA House Price Index (9 a.m.), Consumer Confidence (10 a.m.).

Today’s earnings include: Micron (MU), Cal-Maine Foods (CALM), United Natural Foods (UNFI), Thor Industries (THO).

Today’s IPOs include: Amplitude (AMPL).


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1 All figures reflect S&P 500 (SPX) monthly prices, December 1959–October 2020. Supporting document available upon request.
2 Depending on the year, days 22 and 23 may represent the first and second trading days of November.

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