October Crash? This Month 'Gets a Bad Rap': Carson Group

What You Need to Know

Investors shouldn’t bet against a fourth-quarter rally, Detrick wrote.
Historical trends suggest stocks could see a bounce this month, he said.
October could see a major low rather than a crash, Detrick said.

As sure as autumn ushers in pumpkin spice everything, October brings speculation and concerns about falling stocks. It’s no wonder why, considering October saw landmark market crashes in 1929 and 1987.

Despite October’s history and reputation — and current market uncertainties — Carson Group and its chief market strategist, Ryan Detrick, don’t expect a big crash this month.

“I think October gets a bad rap, as it’s not so much a ‘bad’ month as a month of high volatility,” Detrick wrote in a column posted on the firm’s blog this week.

Since 1950, the S&P 500 index has risen about 1% on average in October, “which ranks as the 7th best month of the year, not all that bad. It also ranks as the 3rd best month the past decade and 4th best the past 20 years,” he said.

“Pre-election years aren’t that great, but overall October has historically not been as bad as the media makes it sound,” Detrick added.

Positive average returns given such large declines mean that “October has also had some huge gains,” he said, noting that the market surged 16% in 1974, 11% in 1982 and 11% in 2011. 

“The bottom line is if you are looking for a crash this month simply because it has had a few crashes in the past, we think you’ll be quite disappointed,” Detrick wrote.

The strategist noted that higher bond yields, a “hotter” economy, geopolitical worries and the potential for more interest rate hikes are adding to near-term worries.

Detrick details four reasons that he doesn’t anticipate a crash.

1. Stocks are oversold.

While most crashes have occurred from oversold circumstances, the strong economy makes odds for a crash “very low” now, Detrick wrote. Less than 10% of S&P 500 stocks are trading over their 50-day moving averages, indicating “extreme oversold levels,” he noted.

“Given we don’t think we are in the middle of another generational financial crisis or once-in-a century pandemic, now could be closer to a major low than most think,” Detrick said.

2. Stocks often gain later in the year.

A “major low” is more likely this month than a market crash, given trends that occurred previous times that stocks were oversold, Detrick wrote.