While it’s inaccurate to say the FTSE 100 crashes every October, there have been notable stock market declines and events during this month.
One of the most famous examples is the “Black Monday” crash, which occurred on October 19 1987, when global stock markets, including the FTSE 100, experienced a sharp and sudden decline.
The Bank Panic of 1907 and the Wall Street Crash of 1929 also took place in October.
So what about this month?
Are we spooked?
While some negative signals have emerged, the primary concerns originate from the US. However, as we know, when America sneezes, the whole world catches a cold.
On 3 October, markets experienced a significant downturn. The Dow Jones Industrial Average saw a decline of 454 points, equivalent to 1.3%. This marked its most substantial drop since the Silicon Valley Bank fiasco, pushing its performance into negative territory for 2023.
Moreover, CNN‘s ‘Fear & Greed Index’, which assesses seven key US market indicators, plummeted to a reading of 14, indicating ‘Extreme Fear’. This level represents the index’s lowest point since the same time last year.
So investors are certainly spooked, but not necessarily in the UK.
American risk factors
Falling sentiment, in the US at least, has been driven by several factors this month. These include:
- Stronger than expected employment data which adds to concerns the Fed may continue to raise interest rates
- Surges in debt and bond purchases have pushed stocks lower
- Congress chaos has raised concerns about a possible downgrade for US debt. The avoidance of a government shutdown is a positive outcome however
More broadly, we can add to that concerns about a global recession, or a hard landing in the US.
An overdue surge?
While a falling US market would likely bring the FTSE 100 down with it, I see fewer risks nearer to home.
Firstly, UK growth has recently been revised upwards. With the British economy performing better than France and Germany over three years, it’s hard to argue that Brexit is a huge issue moving forward. This could relieve some pressure on the market going forward, although Brexit has undeniably weighed on sentiment in recent years.
Secondly, the index is already cheaper than its peers. I’ve previously made the mistake of thinking some FTSE 100 stocks couldn’t go any lower, and they have over the past year. But I feel more confident saying that today. Earnings have remained strong, the outlook is healthy, and stocks look really cheap.
Moreover, interest rates are likely to start falling over the medium term. And this means investor attention will likely move from debt and cash towards stocks. In turn, this should have a positive impact on the FTSE 100.
All things considered, it seems unlikely the FTSE 100 will crash in October. In fact, with the pound weakening and UK stocks looking particularly cheap, I think there’s plenty of potential for an overdue surge.
