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It was the worst September for stocks since 2002. What can statistics tell us about the historical performance of…

Jamie Cameron
9. 10. 2022
4 min read

September has historically been the worst month of the year for stocks and that has come true this year. Investors are likely to remember September, but not in a good way. Does this mean the stock market will continue to lose in the months ahead? Not necessarily. Here's what investors should know about the historical performance of stocks in October.

After a losing September, what returns to expect in October?

The decline on Friday, Sept. 30, left the S&P 500 $^GSPC-0.6% and Dow Jones Industrial Average $^DJI-1.0% with their biggest monthly losses since March 2020. And it was the worst September performance for both indexes since 2002. Seasonally inclined investors may be worried about what this means for October. That's why we take a look at how stocks have historically performed this month after particularly brutal Septembers.

But first, a quick recap of how the month just ended turned out. The S&P 500 fell 9.34%, while the Dow DJIA fell 8.84% and the Nasdaq Composite fell 10.5%. The Nasdaq's plunge marked the worst September performance since 2008.

Excluding the current month, the S&P 500 index has seen September decline 7% or more 11 times, based on 1928 data. The Dow has declined 7% or more 13 times in September, based on 1928 data. The Nasdaq Composite has suffered a decline of 9% or more six times in September since 1986. The S&P 500 has been found to rise an average of 0.53% in October following declines of 7% or more in September. This is better than the average for all months of October of 0.47% and the median of 1.03%. October is positive in the years following the big September loss 54.55% of the time versus 57.45% for all Octobers (see table below).

Historical returns of the S&P 500 index in the month of October

However, the seasonal patterns are only indicative. Of the last 17 bear (or near-bear) markets, stocks have bottomed six times in October. Could it happen again? Many strategists are skeptical of October's reputation as a "bear killer." They argue that the macroeconomic environment, dominated by central banks aggressively tightening monetary policy in an attempt to squeeze out inflation, is likely to be overshadowed by favourable seasonal factors. October is also associated with historic market declines, including those in 1987 and 1929. The S&P 500 index fell nearly 17% in October 2008, following a 9.1% drop in September due to the collapse of Lehman Brothers.

The Dow was found to have averaged a decline of 1.51% in October after a September decline of 7% or more. This compares to an average gain of 0.37% for all Octobers and an average gain of 0.79%. The S&P 500 Index rose 46.15% of the time in October, following a 7% or more September decline, versus rising 57.6% of the time for all Octobers (see table below).

Historical returns of the DJIA index in the month of October

And here are the numbers for the Nasdaq in October following a September decline of 9% or more:

Historical returns for the Nasdaq index in the month of October

Since 1950, September has been the worst month of the year for the Dow Jones Industrial Average, S&P 500 and Russell 1000 and the worst for the Nasdaq Composite since 1971 and the small-cap Russell 2000 since 1979, according to the Stock Trader's Almanac. Although September's overall rating has improved slightly in the medium-term since 1950, average losses are widening for the DJIA (-0.8%), Nasdaq (-0.8%), Russell 1000 (-1.0%) and Russell 2000 (-0.8%). The S&P 500's average September loss improves slightly from -0.5% to -0.4% in the medium-term.

DISCLAIMER: All information presented here is for informational purposes only and is in no way an investment recommendation. Always do your own analysis. I primarily used the Marketwatch portal as a source for this article.

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