Is investing in October scary?

I hate investing in October because it seems to be the month when sharemarkets crash. But is it fact or fiction?

I’m not alone in thinking investing in October is a bogey month, and September isn’t much better. My mates at CommSec decided to research whether my fear is founded or not.

They found over the last 70 years, the best months for shares have been December, April, July and January. Worst months have been September (no surprise here after the performance last month) as well as June, February and November.

While the All Ords fell in October in three of the past five years, these were the only three declines recorded in the past 11 eleven years. Notably if we look at September, shares have only risen once in a September month in the past eight years.

Over the past decade (2011-2020), July has been the stand-out month in terms of the number of increases for the All Ords (9 gains) followed by April (8 gains). And both months were consistently amongst the strongest over the past 70 years.

Investing in October is volatile

But the data certainly shows that October has been a volatile month.

In October some of the biggest daily declines for the All Ords have been recorded, notably in 1929, 1907 and 1987.

The biggest daily fall in the modern era occurred on 20 October 1987 (-25 per cent).

Four of the biggest daily declines in the All Ords happened in October: 20 October 1987 (-25 per cent); 10 October 2008 (-8.2 per cent); 16 October 1989 (-8.1 per cent); and 28 October 28 1997 (-6.8 per cent).

But there have also been big daily gains in October as well. The biggest daily gain in the past 40 years was 20 October 1980 (+6.9 per cent). But other notable gains in October were 29 October 29 1997 (+5.9 per cent); 28 October 28 1987 (+5.5 per cent); and 13 October 2008 (+5.1 per cent).

But as this graph shows, global sharemarkets are well and truly overdue for a pullback. Since 1980 the US sharemarket has, on average, dropped more than five per cent on 4.6 occasions during a year.

You’ll remember the wild times of 2008 when the GFC started. The US market dropped five per cent 24 times that year. Last year, as we battled the pandemic uncertainties, there were 12 five per cent falls.

This year there has only been one five per cent pullback. So we’ve certainly been lucky… but it’s not Halloween yet…