Stocks Tend to Go Big or Go Home in October

October has been the most volatile month of the year

Sep 28, 2018 at 10:28 AM
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The month of October -- and the fourth quarter -- will kick off next week. While we've recently outlined the best and worst stocks to own in October, what can we expect for the broader S&P 500 Index (SPX)? It could be a wild ride, if history is any indicator.

Since 1968, the SPX has averaged a gain of 1.02% in October, per data from Schaeffer's Senior Quantitative Analyst Rocky White. Further, the month has ended higher 60% of the time. October also tends to be the most volatile month of the year, as you can see by the Standard Deviation column in the chart below.

SPX monthly returns

Digging deeper, while December boasts the highest average monthly gain of 1.45%, October has been the best month of the year nine times -- more than any other month. The table below shows the number of times each month had a specific rank in a year. So, the first column shows how many times the month had the highest return of the year, and the last column reflects how many times it was the worst month of the year.

Taking runner-up is the month of April, which has been the best month of the year eight times. The old "Sell in May and go away" adage is evident, too, with May being the best month just once.

It's also interesting that October has been the worst month of the year seven times -- second to only August, with eight. Perhaps that tendency to be mercurial speaks to the aforementioned volatility we tend to see in October. December, meanwhile, has never been the worst month of the year.

SPX month by rank of year

In conclusion, October seems to either "go big or go home," as they say. It's been the best month of the year more than any other month, but has also been the worst month of the year more than any month but August. In order to be the best in 2018, the S&P 500 will need to gain more than January's 5.62% return. In order to be the worst, the stock market index will need to surrender more than February's 3.89% loss. This seasonal stat indicates the odds are in the bulls' favor.

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