rough stretch

US stocks And fell sharply on FridayThey recorded their worst slide in the first nine months of any year in two decades. S&P 500 . Index
SPX,
-1.51%

It posted a monthly loss of 9.3%, its worst performance in September since 2002. Dow Jones Industrial Average
DJIA,
-1.71%

Nasdaq down 8.8%
COMP,
-1.51%

Friday’s total monthly losses rose to 10.5%, according to market data from Dow Jones.

Read: Stocks and bonds ‘disaster discounted’ after investors’ worst streak in 20 years

Indexes posted modest gains in the first half of the month after investors priced in a big hike in interest rates at the late September FOMC meeting as inflation data for August showed little sign of easing price pressures. However, the The central bank’s stance is more hawkish than expected It caused stocks to give up all their gains in early September. The Dow Jones entered its first bear market Since March 2020 in the last week of the month, while The S&P benchmark fell to another low in 2022.

We see: It’s the worst September for stocks since 2008. What does that mean for October.

Bear and medium-term markets

The October record may provide some relief because it was a month of turnaround, or “bear killer,” according to data from Stock Trader’s Almanac.

Jeff Hirsch, editor at Stock Trader Almanac writes, in note Thursday. “Seven of these years was the bottom of the midterm.”

naturally 2022 is also the midterm electionsSo, with the upcoming congressional elections on November 8th.

According to Hirsch, October in midterm election years are “absolutely stellar” and usually the “sweet spot” for the four-year presidential election cycle (see chart below).

The fourth quarter of the mid-terms combines with the first and second quarters of the pre-election years for the best consecutive quarter for the market, with an average of 19.3% for the DJIA, 20.0% for the S&P 500 (since 1949), and a staggering 29.3% for the Nasdaq (since 1971),” Hirsch wrote.

“atypical period”

Skeptics are not convinced that the pattern will be true in October. These dynamics can only work in “more normalized years,” said Ralph Bassett, head of investments at Abrdn, an asset management firm based in Scotland.

“This is just an atypical period for many reasons,” Bassett told MarketWatch in a phone interview Thursday. A lot of mutual funds’ fiscal year ends in October, so there’s plenty of buying and selling to manage tax losses. That’s kind of the stuff we go through and you have to be very sensitive to how you manage all of that.”

An old adage on Wall Street, “Sell ​​in May and leave“Indicates historical underperformance of the market during the six-month period from May to October. The Stock Trader Almanac, who is credited with formulating this saying, found investing in stocks from November to April and switching to fixed income in the other six months”Produced reliable returns with low risk since 1950. “

Strategists at Stifel, a wealth management firm, believe that the S&P 500 Index, which has fallen more than 23% from its record end on Jan. 3, is on course to reach its lowest levels. They see positive catalysts between the last quarter of 2022 and the beginning of 2023, as Fed policy plus negative seasonality for the S&P 500 are headwinds that should subside by then.

Monetary policy operates with a delay of six months, and between [Nov. 2] And the [Dec. 14] Strategists led by Barry Bannister, chief equity strategist, wrote in a recent note. “This could enhance the positive market seasonality, which is historically strong for the S&P 500 from November to April.”

October crash

However, seasonal trends are not written in stone. Market data from Dow Jones found that the S&P 500 has posted positive returns between May and October in the past six years (see chart below).

Anthony Saglimpin, chief markets strategist at Ameriprise Financial, said there are periods in history when October can spark fear on Wall Street where some major historical market crashes, including those in 1987 and 1929, have occurred during the month.

“I think in any years it has been a very difficult year for stocks, seasonality has to omit that, because there are some other macro forces [that are] Pushing stocks, and you need to see more clarity on those macro forces that are driving stocks lower,” Saglimpin told MarketWatch on Friday.