MSM October Forecast: Either A Great Market Or A Middling Market

There can only be a great October or a so-so October. It’s Unicorns and Rainbows (great) or Unicorns and Rainbows Lite (middling), but under no circumstances does the MSM even ponder a third possibility…

by Ryan Vlastelica via MarketWatch

The period between the end of April and the end of October is informally considered the “worst six months” for both the Dow Jones Industrial AverageDJIA, +0.11%  and the S&P 500 SPX, +0.37% according to the Stock Trader’s Almanac, with the tail end of that stretch seen as particularly risky. (For the NasdaqCOMP, +0.66% the period between the end of June and the end of October is considered the worst four months of the year)

This trend hasn’t played out in 2017. With one trading day left in September, the S&P is on track to rise in each of the past five months, for a total gain of 5.3% over that period. Similar results are seen in the Dow, while the Nasdaq has risen in four of the past five months.

That rally demonstrates how unceasing the market’s advance has been. For the month of September, the Dow is eyeing a 2% gain, the S&P a 1.6% advance, and the Nasdaq a 0.4% rise, as of Thursday’s close. The Dow and the S&P are on track for their sixth straight monthly gains, while the Nasdaq is set for its third straight positive month, although it has risen in 10 of the past 11 months.

 Wall Street’s September climb is particularly notable from a historical perspective. Typically, it is the worst month of the year for stocks, with an average loss of 1.05% since 1896. (Across the other 11 months, there is an average gain of 0.75%.) Not only have stocks trended higher this year, but the month is on track to be the quietest September, in terms of volatility, in history.

How the market performs in October could determine what the next year looks like, given there is a divergence between how the market performs in the 12-month period following a “great” May-through-October stretch, and a “not bad” one. Hirsch wrote that with one month in that period remaining for 2017, the S&P was “right on the cusp” of the kind of gains that separate a not bad period from a great one.

In the 12 month period following a great “worst six months,” the market is positive 76.2% of the time, and posts a median gain of 12.8% over that period. For a “not bad” one, it is only positive 62.5% of the time, and sees a median rally of just 4.5%.