Market Tops and Bottoms Since 1950: The October Effect


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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

By Doug Short, Advisor Perspectives,

We’re now at an early point in the Q3 2014 earnings season, which happens, of course, in October, historically the most volatile month in the U.S. stock market. Let’s step for a moment into the realm of market trivia and consider the October Effect in the stock market. In the S&P 500, October is the month that has, by far, hosted the most major market bottoms — five of the ten in the chart below. As for market tops, October has hosted only one since 1950, the high on October 9, 2007 — the seventh anniversary of which we celebrate today.

The most recent record S&P 500 close was three weeks ago on September 18th.

Click to View

In terms of average monthly performance, here’s a chart illustrating the behavior of the months since 1950. September has the worst track record. October is somewhere in the middle of the pack.

But now let’s consider monthly volatility, by which I mean the percent change from intra-month lows to intra-month highs. The adjacent table clearly documents the volatility of October, the highest of the twelve. A survey of all the months with 10% or more intra-month volatility puts October at the top, as does a ranking by the average intra-month volatility.

So if you don’t like volatility, you’ve traditionally been happier when Halloween is a memory.

Note: The 1950 start date uses spiced data from the S&P 90 for the index prior to the launch of the 500 in March 2009. This is the widely used data series made available by Yahoo Finance. The troughs in the first chart are based on daily closes with a -20% or more qualifier, with one concession — the 19.9% decline in 1990, which would have been greater if we were using intraday highs and lows.

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