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October
is a scary month, and not just for little kids exposed to
Halloween for the first time. October is a notoriously infamous
month for the stock market. I can hear my friends now?"Oh,
great, so you wait till the END of the month to share this
information?" Well, yes - I'm full of tricks, but I have a
few treats for you, also. First, let's look at a few reasons
why stock market pundits might cringe when October rolls around:
- The
1929 stock market crash happened on Thursday, October 24th.
But, the crash didn't begin and end on one day, oh no. This
day, Black Thursday, marked the beginning of the Great Depression,
an era that lasted through about another eleven Octobers
until 1941.
- The
stock market took a little dive in October 1973, a swan-like
maneuver that lasted about a year to the following October.
- The
largest drop in Wall Street history happened on October
19th 1987, when the Dow Jones Industrial Average plunged
508.32 points, losing 22.6% of its total value. This day
is known as Black Monday.
I could
go on with October downside variables, but you get the picture.
If you plug the phrase, "stock market drop October" into any
search engine, you'll find a number of recent and past articles
written by stock market pros who walk through October like
they're walking on eggshells. Why? Let's look at a few more
tricks that make October scary, and a few treats that might
counterbalance our goosebumps:
- TRICK:
October represents the end of a yearly quarter, when a majority
of corporations report their third quarter earnings. If
you're familiar with the quarterly report, then you know
that this problem alone is enough to make stocks sag for
a few days, a few weeks, or even a few months to the beginning
of the following year. If the past two quarterly reports
were gloomy, the October report will probably make sellers
jump to action, because many corporations won't recoup during
the last quarter of any given year.
TREAT: One caveat - the "many corporations won't
recoup" scenario usually doesn't hold true for seasonal
equities that bloom during cold winter months (think ski
resorts, gas and oil companies, etc.). Keep in mind that
a snow-less winter that's unusually warm won't benefit these
seasonal companies.
- TRICK:
Speaking of oil, investors have a tendency to send stocks
down when crude oil prices rise. This October was especially
volatile, because crude oil prices set a record trend upward
to $55 per barrel. This
news sent the Dow below 10,000 on the 14th.
TREAT: There's not much of a treat concerning high
crude oil prices, but Reuters
UK tends to view the market with positive eyes as
they report, "US stocks advanced on Friday as a jump in
September retail sales boosted investor confidence in the
economy, but oil prices at a fresh record of US$55 a barrel
kept gains in check." That's one way to look at this mess
- and we might continue to watch retail sales, including
the sales of socks, sweaters, and other clothing items that
will keep the chill off at home with the rise in heating
prices.
- TRICK:
As noted at the end of that last news article in the previous
paragraph, Friday October 14th also was options expiration
day. While this may not make much sense to us as new investors,
we can at least understand that when individual equity options
and some stock index options expire at the close of trading,
this action adds to stock market volatility.
TREAT: What we don't know sometimes can't hurt us,
but when we know the real truth behind option expirations
we might breathe a sigh of relief. Options expire every
month, not just in October. If you want to view expiration
dates for the remainder of 2004, visit Yahoo!'s
Options Expiration Calendar.
- TRICK:
This is an election year, and October is debate month. Many
investors are leery of making investments until after the
election is over. Remember last election? That one wasn't
over until the president took the oath of office in January.
Hopefully this election will end when it's supposed to end,
and everything will go back to the status of a non-election
year.
TREAT: Presidential elections happen only once every
four years.
-
TRICK:
Short-term investors know about the October Jitters, and
this affects how many of these individuals view their purchases
during this month. Many would rather wait to invest in November,
December, or even the beginning of the year rather than
drop money into a month filled with volatile events.
TREAT: We're long-term investors, and things like
options expirations, presidential elections, and high crude
oil prices shouldn't keep us from continuing to invest in
our portfolios. The bright side? If your stock is down,
it may be time to buy more at a cheaper price. If it's down
because of any of the reasons mentioned above, it should
revive when the October Jitters are over.
So, go
dress up and join the kids (or not) and have a great time
this Halloween. Be safe, don't be tricked, and treat yourself
well.
Until
Next Week,
Linda Goin
The securities
markets are subject to the risks of fluctuating prices and
the uncertainty of rates of return and yields inherent in
investing and past performance is no guarantee of future results.
Periodic Investment Plans, Dollar-cost averaging and Compounding
do not assure a profit and do not protect against losses in
declining markets and you should consider your financial ability
to continue to purchase through periods of low price levels
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