September is over. But investors should be ready for another volatile month. If they are prepared, though, they can find some of the best opportunities of the year in October.
Historically, September tends to be a bad month for stocks, and this year was not an exception. After a strong August, the main three US indices closed down in September, their first monthly loss since March.
The S&P 500, the broadest measure of US stocks and the index used as a benchmark for index funds, dropped 3.9%. The Dow, a composition of 30 blue-chip companies, fell 2.3%. And even the resilient Nasdaq Composite, which houses many tech firms, tumbled 5.2%.
For the third quarter, however, they had strong gains. The S&P 500 rose 8.5%, the Dow 7.6%, and the Nasdaq 11%
Year to date, they also have a positive return, with 4.1%, 2.65%, and 24.5% gains, respectively.
The losses in September were mainly caused by a hefty drop from tech stocks at the beginning of the month, the same tech sector that has driven the market recovery since the pandemic hit the markets in March and caused one of the fastest declines ever.
According to the investment advisory firm LPL Financial, data shows that September and October have been the worst-performing months for markets, on average, since 1950 during an election year.
And data also shows that October is the most volatile month of the year — every year.
Despite the probable period of uncertainty before Election Day, on November 3 — and maybe after, since the result could be too close to call and take days or even weeks to find out who won —, new hopes emerged this week for potential approval of a second stimulus package by Congress.
There is no deal yet, but Treasury Secretary Steven Mnuchin said this Wednesday that lawmakers are giving the bill “a serious try,” triggering optimism between investors. The talks will continue in the next few days.
Until the election, in particular, investors should not allow emotions to take over and let volatility lead to opportunity. There will be plenty in the market for the ones prepared to take advantage of them.