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How to Prepare for the “October Effect” in Key Stock Indices

By for Daily Gains Letter | Oct 4, 2013

Key Stock IndicesOctober has just begun, and it’s one of the most interesting months for key stock indices. In the past, some of the major crashes occurred during this month. For example, on October 19, 1987, key stock indices, like the Dow Jones Industrial Average and the S&P 500, witnessed one of the biggest daily declines. But that’s not all: we also saw a pullback in October of 1989, followed by another glitch in October 2002. And who could forget October 2008? As you can see, October isn’t only scary for those who go out trick-or-treating; investors are fearful as well.

Looking at historical data, here’s how the key stock indices have performed in October.

The average return in October on the S&P 500 from 1970 to 2012 has been 0.54%. The highest return on the S&P in the month was in 1974, increasing more than 16%; the lowest return was in October of 1987, when the index dropped more than 23%. If we take out the two extremes, then the average return in the month of October on the S&P 500 since 1970 is 0.73%. (Source: “Historical Price Data,” StockCharts.com, last accessed October 2, 2013.)

For the Dow Jones Industrial Average, the average return in the month of October from 1970 to 2012 is 0.4%. The highest return achieved was in 1982, when the index increased 10.65%, and the lowest was in October 1987, when the index declined more than 23%. If we take out both extremes, the average on the Dow Jones Industrial Average since 1970 is 0.72%. (Source: Ibid.)

Dear reader, what I have mentioned are a few of … Read More