The stock market in October: Fruitful but volatile

October’s bad reputation among investors seems to be justified at first glance. In 1987 the FTSE All-Share index fell by 27 per cent in October, and in 2008 it dropped by 12 per cent in the month.

However, of the 27 years since 1990, the UK stock market has seen negative returns in October in just six – a record second only to December. In recent years equities have remained strong in October: they have fallen in only one year since 2010.

Equity strength in October may be connected with the fact that the strong six-month period of the year – the ‘sell in May’ effect – starts at the end of October. Investors may be anticipating this by increasing their weightings in equities in October.

-Investors were wrong to sell in May – has the old adage had its day?

The last day of the month tends to be strong – it has the best record of any month’s final trading day. But occasional weakness in October can be severe, and the month has a deserved reputation for volatility. Only September rivals it for share price fluctuations.

In an average October, the market tends to rise in the first two weeks and then fall back, before surging in the final few days of the month.

Over the past 10 years the shares with the strongest records in October have been Diageo [DGE], Tate & Lyle [TATE] and Whitbread [WTB]. Diageo has been especially strong: it has produced positive returns in October every year since 2006, of 3.1 per cent on average. Weak shares in October over the period include Marshalls and William Hill. 

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