Dow Jones Industrial Average (DJIA) futures jumped almost 100 points on the first day of October. The move kicks off what is historically an “explosive” month for the stock market. October is the most volatile month of the year, playing host to multiple crashes including Black Thursday back in 1929.
After a relatively mellow September, analysts expect some wild swings in the Dow and S&P 500 this month. And there are plenty of potential triggers on the horizon: the US-China trade summit, impeachment hearings, and the final Brexit deadline.
“We’ve been spoiled by the lack of volatility this month, and it increases the chances of a little more explosive October” – Ryan Detrick, LPL Financial.
Dow futures jump 100 points
Dow Jones Industrial Average (DJIA) futures clicked 100 points higher in early trading Tuesday before pulling back slightly. The move was buoyed by stronger-than-expected manufacturing data out of China.
October: the most volatile month on the stock market
October is historically the most volatile month according to the Cboe volatility index (VIX). It’s also the second most bearish month of the year, beaten only by September when tracked back to 1950. And if you’re a small-cap investor, it’s the worst-performing month.
Stock market historians will recall some of the most dramatic Dow Jones crashes came in October. The largest – Black Thursday on October 24th, 1929 – saw 11% wiped out in one day. Black Monday came in October 1987 and who could forget the collapse of the banks in October 2008?
Goldman Sachs says this is no accident. At the end of Q3, money managers reposition themselves for the end of the year and start offloading poor performers.
“We believe high October volatility is more than just a coincidence… We believe it is a critical period for many investors and companies that manage performance to calendar year-end” – John Marshall, Goldman Sachs
A Dow crash in the stars?
Even the astrologists agree. According to ‘astrologist for traders’ Susan Gidel, the planets are aligned for a Dow downturn this October.
“[Big market crashes happen on the] “27th-28th day of the 7th lunar month, when the Full Moon occurred between October 3-19.”
You don’t need me to tell you to take this prediction with a very large pinch of salt…
Stock market catalysts
Back in reality, there are some very real stock market triggers on the horizon in October. The first of which is the crucial US-China trade meeting on October 10th. While sentiment is currently positive, this event will set the tone for any potential trade deal and could stall the Dow’s momentum.
The ongoing Trump impeachment enquiry may also feed uncertainty into the market. While the Dow and S&P 500 are thus far unfazed by the impeachment process, that could change if new details come to light.
And finally there’s the October 31st Brexit deadline. UK Prime Minister Boris Johnson is set to deliver his Brexit deal to the EU this week, but if it falls apart the UK risks crashing out of the bloc without a deal at the end of the month.