What Will Happen in October for the Market?

Expectations going into a new month

Before even going into this article, god bless the comment section.

I wrote two articles in September about how a crash was likely. Did it happen? Not exactly. September was down about 5%. Don’t I get some credit for predicting September would be down a decent amount and a good buying opportunity?

Damned if you do, damned if you don’t.

So luckily for anyone who gets annoyed by this article, you can leave another comment. Or better yet send a carrier pigeon with your displeasure to me — that’d be more appreciated.

September Scaries Are Over

September was in fact a scary month. The month was down 5%, although the first day of October started off great with over 1% gains. Unfortunately, the second trading day of October (Oct. 4) wasn’t great.

There were several factors why September was down.

The first is that September is historically a bad month. On average, September returns -0.70%, the worst month of the year.

Another big issue was the Federal Reserve. They hinted that rate hikes could start in 2022, (which shouldn’t startle investors,) but it did. As a result, tech companies were down notably. Remember, lower rates help tech/growth companies, higher rates hurt them.

But September is over. We made it. Who cares about the past. Let’s look to the future.

For the article where I laid out why September could be down 10%, it can be found here.

For the article where I showed the stocks and sectors already down ten or twenty percent, it can be found here.

What To Expect in October?

I don't know. I don't have a crystal ball. No one knows what will actually happen. So don’t sue me if I’m wrong.

But here’s my guess.

While I believe the market (aka the S&P 500) will finish higher to end 2021 than where it currently is at, I am not as confident for October.

Historically, October has returned a little under 1%. Given that September was down big, one would expect October to recover those losses and therefore gain more than 1%.

BUT, there have been many crashes in October: the bank panic of 1907, the crash of 1929, and black Monday in 1987.

Investors will be wary of a crash coming in October based on historical crashes.

While the market was up significantly on October 1st from the news related to Merck’s oral treatment for Covid-19, it lost all those gains the next trading day.

But don’t expect things to be easy in October — it is historically an extremely volatile month.

The NASDAQ had a worse September than the S&P 500, and due to the tech-heavy nature of the NASDAQ, some of the issues that persisted in September will impact October as well.

Issues the Market Faces

One of the first issues will be the monthly unemployment report, which is released Friday, October 8th. These figures will have an impact on the Federal Reserves' actions going forward.

Arguably the two biggest issues to monitor have to do with the government.

The Federal Reserve has had easy policies since the start of the pandemic. It is expected they will soon start to reduce their bond purchasing. And even more important, they are expected to raise interest rates in the next year. This is impactful on treasury yields, debt, and tech and growth stock.

The second is the debt ceiling. The longer the situation persists, and the more uncertainty there is, the less optimistic the market will be.

Covid-19 cases are also impacting markets. The issue now is less about short-term cases and more about the long-term timeline of when Covid will get under control again. Until the situation is handled, it will be an issue impacting pockets of stocks, such as travel-related companies.

One catalyst for concern in September was from the Chinese company Evergrande. While they were able to make debt payments, they still aren't out of trouble just yet. But this is likely not much of an issue as it was last month. (Although other Chinese real estate companies are showing signs of struggle as well.)

Final Thoughts

I expect October to be volatile. There may be days where the market is down 1.5% and up just as much the next day.

I expect the market will still move lower than where it currently is, but I do believe October will finish higher than September closed.

But I’ve been wrong before, so your guess is as good as mine.

The above references an opinion and is for information purposes only. It is not investment advice.