6 reasons investors should fear autumn

September and October have dark and stormy histories.

By TheStreet Staff Sep 7, 2010 10:04AM

Horror © Image Source/CorbisBy Gregg Greenberg, TheStreet

 

Strap yourselves in. Autumn is upon us.

 

Both the 1929 and 1987 stock market crashes occurred in October, and don't forget the Dow Jones Industrial Average's ($INDU) 554-point drop in October 1997. The market suffered back-to-back "massacres" in fall 1978 and 1979. And who can forget the panic in autumn 2008, when Lehman Bros. failed in September, followed by equities' biggest monthly point drop ever in October?

 

Yes, there is good reason to fear the fall. And in case those are not enough, here are a few more.

 

1. "September is the worst month of the year, averaging losses across the board. But the beginning of September is strong, with the S&P 500 up 73% of the time on the first trading day since 1995. The day after Labor Day, the Dow has been up 81% of the time since 1994." -- Jeffrey A. Hirsch, editor-in-chief of the Stock Trader's Almanac

2. "The week after September Triple Witching is scary, with the S&P 500 up only three times in 20 years with only three big gains. Two of those big gains came after bear market bottoms in 1998 and 2001." -- Jeffrey A. Hirsch, editor-in-chief of the Stock Trader's Almanac

 

3. "Since 1929, following a quarterly decline of 10% or more, the S&P 500 rose 4.6% in price during the first month after that decline, gained 1.4% in the second month following the down quarter, but declined an average 2.8% in price in month three. So if history should repeat itself, and there's no guarantee it will, we could see another slight gain for the S&P 500 in August, followed by a decline in September, which is a traditionally weak month for the market." -- Sam Stovall, chief investment strategist of Standard & Poor's Equity Research Group

 

4. "In the options markets, implied volatilities in October expiration will tend to be slightly elevated relative to other months. Some of this will have to do with that typical autumnal fear. But some of it also has to do with earnings, which is why September can be so scary. During pre-announcement season, people get nervous that numbers will stink and that guidance for the next year will be rotten." -- Jud Pyle, OptionsProfits contributor to TheStreet

 

5. "People like to sell their losers in the fourth quarter to get ready for tax purposes at the end of the year. But those who plan ahead tend to do it well prior to Thanksgiving so they can buy those stocks back and not violate the Wash Sale rule. So that tends to add to the seasonal volatility." -- Phil Roth, chief technical market analyst at Miller Tabak

 

6. "October is known as a jinx month because of crashes and massacres, but it is a 'bear killer,' turning the tide in 11 post-World War II bear markets. Don't succumb to Octoberphobia, especially in the midterm year. The fourth quarter of the midterm year and the first quarter of the pre-election year are the sweet spot of the four-year cycle, with Dow averaging 14.4% over the two-quarter span." -- Jeffrey A. Hirsch, editor-in-chief of the Stock Trader's Almanac

 

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