After the drops the Dow and S&P 500 index saw in September, history says they're set to fall again next month. But there may be a silver lining.
NYSEThe stock market had a rough September. History says more declines could be in the cards for October.
For September, the Dow Jones Industrial Average has fallen 3.5%, the S&P 500 index dropped 3.9%, and the Nasdaq Composite declined 4.6%.
At first, China Evergrande Group ‘s (ticker: EGRNF) financial troubles were roiling markets, before the People’s Bank of China assured markets that it would not allow the company’s defaults to spread into the broader banking system. Meanwhile, U.S. companies were seeing earnings estimates revised downward because of supply chain constraints, while bond yields were rising, which puts a large dent into valuations of technology companies.
October doesn’t necessarily get much better for stocks. After a 2% September decline or more on the S&P 500, the index averages a 0.4% drop in October, dating back to its inception. After the Dow falls by the same amount in September, it goes on to drop 1% in October. However, the Nasdaq goes on to see an average October gain of 1.7%.
The good news is that the chances that stocks rise in October aren’t as low as the above statistics might suggest. The average October move for the S&P 500 and the Dow may partially be a function of a few particularly horrid Octobers. The largest declines in the month for those two were 22% and 23%, respectively. Meanwhile, the largest gains for those two were just 16% and 11%, respectively. In fact, for the slight majority of Octobers, all three indexes rose.
As for this year, investors are watching few items, which could still keep stocks down in the near term. With the Fed likely soon buying fewer bonds, many on Wall Street agree that bond yields are still headed higher. In order for earnings estimates to stop falling, supply-chain constraints likely have to ease. And investors still need to hear from the Biden administration and Congress about how high corporate taxes might go.
History is a nice guide, but it doesn’t outweigh fundamental developments.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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October 01, 2021 at 02:36AM
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Stocks Had a Bad September. October Might Bring More of the Same. - Barron's
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