Stock market bulls are hoping October will be another ‘bear killer’. Why skeptics are not convinced.

While September lives up to its reputation as a brutal stocks month, October tends to be a “bear market killer” known for its historically strong returns, especially during the mid-election years.

However, skeptics warn investors that negative economic fundamentals could overwhelm seasonal trends as what has traditionally been the toughest period for equities comes to an end.

The S&P 500 SPX,
was on track for a 7.9% monthly decline on Thursday, while the Dow Jones Industrial Average DJIA,
fell 7.2% and the Nasdaq Composite COMP,
increased its total monthly loss to 9.1%, according to Dow Jones Market Data.

Indices posted modest gains for the first half of the month after investors fully priced in a large rate hike at the FOMC meeting in late September as August inflation data showed little sign of slowing gains. However, the central bank’s more hawkish than expected monetary policy stance caused equities to give up all of those initial gains. The Dow entered its first bear market since March 2020 during the last week of the month, while the large-cap index slipped to another low from 2022.

See: It’s the worst September for stocks since 2008. What that means for October.

October’s track record may offer some comfort, as it was a turnaround month, or “bear killer,” according to Stock Trader’s Almanac data.

“Twelve post-war bear markets ended in October: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002 and 2011 (S&P 500 down 19.4%),” wrote Jeff Hirsch , Editor of The Stock Trader’s Almanac, in a note on Thursday. “Seven of those years were mid-term lows.” 2022 is also a mid-election year, with congressional elections in November.

According to Hirsch, October is “a standout” during the mid-election years and is usually where the “sweet spot” of the four-year presidential election cycle begins (see chart below).

“The fourth quarter of the interim years, combined with the first and second quarters of the pre-election years, forms the best range of three consecutive quarters for the market, averaging 19.3% for the DJIA and 20.0% for the S&P 500 (since 1949). and a staggering 29.3% for NASDAQ (since 1971),” wrote Hirsch.


Skeptics are not convinced the pattern will hold true in October. Ralph Bassett, head of investments at abrdn, an asset management firm, said this momentum could only unfold in “more normalized years”.

“This is such an atypical time for so many reasons,” Bassett told MarketWatch in a phone interview Thursday. “A lot of mutual funds have their fiscal year in October, so there’s usually a lot of buying and selling to deal with tax losses. It’s something we’re going through right now and you have to be very sensitive about how you handle it all.”

Seasonal trends for October

The old Wall Street adage “Sell in May and go away” refers to the market’s historical underperformance during the six-month period from May to October. The Stock Trader’s Almanac, which is credited with coining the proverb, found that investing in stocks from November through April and switching to fixed income for the other six months “reliable returns with reduced risk since 1950.”

Strategists at Stifel, an asset management firm, are claiming that the S&P 500, which has fallen more than 23% since its record close on Jan. 3, is in the process of bottoming out. They see positive catalysts between the fourth quarter of 2022 and early 2023 as Fed policy and negative seasonality in the S&P 500 are headwinds that should ease by then.

“Monetary policy operates with a six-month lag and between the last two Fed meetings of 2 ) inflation data rather than policy,” strategists led by Barry Bannister, chief equity strategist, wrote in a recent note. “This could amplify positive market seasonality, which is historically strong for the S&P 500 from November through April.”

However, seasonality trends are not set in stone. Dow Jones Market Data found that the S&P 500 posted positive returns between May and October for the past six years (see chart below).



Anthony Saglimbene, chief markets strategist at Ameriprise Financial, said there are periods in history when October could inspire fear on Wall Street, as several major historic market crashes, including 1987 and 1929, happened during the month.

“I think any year that you’ve had a very tough year for stocks should be seasonal because there are some other macro forces that are pushing on stocks and you need to see more clarity on those macro forces that are affecting stocks push down,” Saglimbene told MarketWatch on Friday. “Honestly, I don’t think we’re going to see much visibility at least in the next few months.”

US stock indexes fell mostly lower in choppy trade on Friday after an inflation gauge showed inflation had accelerated more-than-expected in August. Stock market bulls are hoping October will be another ‘bear killer’. Why skeptics are not convinced.

Brian Lowry

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