In the investment world, October is a month to be feared, but data points in another direction.
Seven of the 11 worst one day falls in history on the FTSE 100 have happened in October. The worst of these on October 20, 1987; known as Black Monday, it was a day that saw global stock markets crash and the FTSE tumble more than 12%, earning October a bad repuation as a volatile month in the market. So how did October 2019 compare?
A closer look shows us that the biggest one day falls are largely linked to two specific stock market events. Indeed, three of the worst 11 days on the FTSE were in October 1987 as the ripples of Black Monday were felt, and five were in 2008 at the height of the financial crisis.
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 |
-5.7 |
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 |
||
Indeed this year – as with many other Octobers before – has not been a bad one for the stock market. The US market, for example, hit another high this month, climbing further as the Federal Reserve cut interest rates for a third time. Investors tempted to avoid the market in October may then be missing out on potential returns. Ben Yearsley, director at Shore financial planning, says: “Most of these stock market myths are pointless. You can easily construct a narrative around why you should or shouldn’t do something, but honestly you are better off spending time deciding where you want to invest and then sticking with it for the long term rather than trying to time markets and avoid falls.”
Meanwhile, for the FTSE 100, October has historically been one of the best months on average for returns. According to research conducted by Willis Owen, over the past 35 years October has been the fifth best performing month of the year for the FTSE 100. In 2019, Brexit and Election uncertainty have, however, not seen this trend play out - the FTSE 100 is down around 2% since the start of the month.
Yearsley adds: “We have got to the end of October this year without any major calamities, even despite our esteemed elected representatives in Westminster trying their hardest to unsettle the markets."
Investors should think twice before basing any decision on a superstition. Such strategies are reminiscent of the “Sell in May” adage, which encourages investors to sell their shares at the beginning of May and then re-buy them on St Leger’s day in September.
Laura Suter, personal finance analyst at AJ Bell, agrees: “There are lots of market trends that people cling on to, from the adage of ‘sell in May and go away’ or that certain days of the week tend to have positive returns. These are interesting to read about but shouldn’t be a basis for investing your portfolio.”
She says it makes more sense to focus on the long-term issues facing a market and the fundamentals of stocks and funds investors may be considering putting their money into. In the UK, investors should consider how best to position their portfolios to benefit from the various possible election and Brexit outcomes. Further afield there is the ongoing US-China trade war, central bank interest rates and slowing global growth to consider.
Andrew Hunt, manager of the ASI UK Recovery fund, says: "Stock markets and the stocks within them can indeed swing about violently and always have done. For investors who understand the underlying businesses, this is a source of opportunity. Big falls driven by panic selling gives calm long-term investors the chance to buy shares at bargain prices, while periods of euphoria can be a good time to take profits."
.jpg)
