Markets in October tend to be strong, if rather volatile

Despite the memory of Black Monday, the autumn month should be regarded as a good one for shares.

October has a bad reputation. It’s partly justified, one might think, as in 1987 the FTSE All-Share Index fell by 27 per cent in October and in 2008 it fell by 12 per cent in the month.

But the chart below tells a different story. In the 28 years since 1990, the UK stock market has seen negative returns in October in only six years – a record only beaten by December. And in recent years equities have remained strong in October, having fallen in just one year since 2010.

 

That said, while average equity market returns in October (+1.6 per cent since 1990) may be better than is widely believed, the month can be volatile. The strength of equities in October may be connected with the fact that the strong six-month period of the year starts at the end of October (the ‘sell in May’ effect); investors may be anticipating this by increasing their weighting in equities during October. The month has the best record of any month in terms of the last trading day (‘sell in May’ again, perhaps).

October should be regarded as a good month for shares, but occasional weakness in the month can be severe. On average in October, the market tends to rise in the first two weeks, but then to fall back, before prices surge in the last few days of the month.

Over the past 10 years the strong sectors in October have been oil and gas producers, beverages, and real estate investment and services, while the weak sectors have included software and computer services, healthcare equipment and services, and general industrials.

The month is one of only two when FTSE 100 stocks tend to outperform the mid-cap FTSE 250 stocks. Since 1986 the FTSE 100 index has on average outperformed the FTSE 250 index by 0.7 percentage points in October. 

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