Many stock market participants feel a chill when they think of October. Me? I don't get it. Why should an artificial division of the year into 12 roughly equivalent periods, adopted as the Gregorian calendar in 1582, have any influence on the value of future corporate cash flows? Is there even a case to be made here?
The October bear case
Well, it's true that two of the stock market's most memorable declines have fallen in October. The 1929 crash caused the market to decline so severely that it didn't return to pre-crash levels for nearly a quarter of a century. On Oct. 28, 1929, alone, the market lost 13% of its value. That day was known as Black Monday. There was another Black Monday in 1987, this time on Oct. 19, when the Dow Jones Industrial Average lost 22.6% of its value. Monday is obviously not October's best day of the week.
I must also admit October has some pretty quirky holidays. First, there's Halloween, which got its start as a vigil before All Saints' Day, Nov. 1. How Western civilization morphed a solemn celebration of famous do-gooders into a wacky tribute to black cats, silly costumes, and glucose binging is a strange tale that I won't pursue here.
I also have mixed feelings about Columbus Day. And don't forget that it's National Dental Hygiene Month. Oh, and October is also famous as "Red October," because of the Russian Revolution.
OK, so October does have more than its share of oddities. So why shouldn't the stock market be a bit unsettled?
The October bull case
But now, folks, let's get real. For the past 10 years, October has been pretty good to the stock market. Check out the S&P 500's October performance over the past 10 years.
|
Year |
Open |
Close |
Change |
|---|---|---|---|
|
1997 |
947 |
915 |
(3.4%) |
|
1998 |
1,017 |
1,099 |
8.1% |
|
1999 |
1,283 |
1,363 |
6.2% |
|
2000 |
1,437 |
1,429 |
(0.6%) |
|
2001 |
1,041 |
1,060 |
1.8% |
|
2002 |
815 |
886 |
8.7% |
|
2003 |
996 |
1,051 |
5.5% |
|
2004 |
1,115 |
1,130 |
1.3% |
|
2005 |
1,229 |
1,207 |
(1.8%) |
|
2006 |
1,336 |
1,378 |
3.1% |
|
Average Change |
2.7% |
On average, the broad market has gained 2.7% over the past 10 years during October, with declines in only three of those years. Not too shabby. Even in 2001, when investors had every reason to hide under the bed, the market gained during October.
And who can't be bullish on a month that calls Oktoberfest its home? At no other time of the year can you put on your lederhosen, drink all the beer you want, and consume enormous quantities of bratwurst and sauerkraut.
One October strategy
My favorite pastime in October is picking retail stocks, since they usually offer up buying opportunities during the month. You never see news articles in October predicting rosy holiday retail sales. They're usually about consumers lacking confidence, and they talk about potential markdown bloodbaths to come. Why? Well, because no retail executive in his or her right mind is going to serve up a rosy outlook in October only to look the fool two months later.
I have several retail companies in my sights right now. The list includes Wal-Mart (NYSE:WMT), Kohl's (NYSE:KSS), Bed Bath & Beyond (NASDAQ:BBBY), Williams-Sonoma (NYSE:WSM), J.C. Penney (NYSE:JCP), and Sears Holdings (NASDAQ:SHLD).
All of these companies are solid enterprises with great brands. They all have the potential to fare well this holiday season. In addition, the future weakness that could begin this month might present buying opportunities for Foolish investors who aren't afraid of their own shadow.
For more spooky suggestions, check out:
