Are We Heading For Another October Crash?

Although history suggests that September is the worst month for stock market performance, October has the darkest reputation.

The most famous correction of all, the Wall Street Crash, started on 24 October, known as Black Thursday. The next most famous crash, Black Monday, struck on 19 October 1987, when the FTSE 100 fell 12% in a day, and a further 14% next day. Since 1984, October has seen seven of the 10 largest one day falls in the market, according to new research from AXA Wealth. 

Paint It Black

Even the crash that triggered the financial crisis started in October when the FTSE 100 fell by 21% in a week, starting on 4 October 2008. 

Adrian Lowcock, head of investing at AXA, says all of this may just be a spooky coincidence, but there may also be an underlying pattern. “October is typically the month where we see volatility peak having begun to rise in September,” he notes. September this year was certainly volatile, even if the FTSE 100 benchmark index ended roughly where it began, at 6061. So can we expect more black days to remember this October? 

There are plenty of reasons to expect trouble ahead. China continues to slow, and a repeat of the recent Black Monday crash can’t be ruled out. The Syria crisis has only been made more combustible by Vladimir Putin’s intervention. Japan’s last throw of the dice, Abenomics, is in the balance. Even €1 trillion of QE isn’t enough to get Europe rocking again. New services data shows the UK — the G7’s unlikely GDP growth star — is also losing its mojo. Friday’s disappointing US jobs report has made it clear that the States isn’t immune to the global slowdown. 

Risk And Reward

There is one good reason why the FTSE 100 won’t crash this week: it already has. It began this week down 14.5% on its April peak. Globally, investors have seen around $11 trillion wiped off share values in the third quarter of 2015. Markets may be volatile but they no longer look frothy, with none of the irrational exuberance that typically marks the run up to a crash. As share prices fall, stock market investing actually becomes LESS risky, rather than more. Most novice investors assume it is the other way round.

A crash might come, nobody knows. But we do know that if you’re investing for the long term, it is nothing to be scared of.

Crashing Good Fun

After the Black Monday crash of 1987, markets quickly recovered their losses. Within a year or two, global stock markets were topping their pre-crash highs and continued to soar upwards. The only private investors who lost out were those who sold at the bottom, making it a really black day for them.

That is what happens every time markets crash. Which is why experienced investors welcome them, as a fantastic opportunity to buy their favourite stocks at bargain prices. October can be a brutal month but you can also turn this to your advantage. Although daily volatility peaks in October and history shows that crashes are more likely, AXA figures show the month has a good track record. It has returned 0.8% on average for investors, making it the fourth best month of the year. So enjoy October, crash or no crash.

Turning a crash to your advantage by going on a cheap share buying splurge is just one way to build long-term wealth on the stock market.

But to really make a success of investing, you have to combine this with other strategies.

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