In order to predict the future, one must consider the past and research similar market cycles to come up with a probable forecast for the future. After studying comparable periods to the one we are experiencing today, investors will realize that an October correction is not likely.
Consider the following:
We have not yet recovered fully from 2008. The market rebound after the crash of 1987 did not see a correction of 10% until 1990, which is more than two years later. Moreover, that correction was after "only" a 35% drop from top to bottom. At present, we are only six months removed from a 55% drop in the market.
October may be a negative month, but it's usually more in the range of 3% to 5%. The Octobers of 2008 and 1987 were the two biggest October sell-offs of the last 30 years, but each was preceded by a negative September. This year, September was positive.
During past October sell-offs, the month didn't represent the first wave of the attack. May and June often paved the way. October then stepped up to wipe out the survivors who believed the worst was over. Again, we did not see major selloffs in May or in June. In fact, this past June marked the fourth consecutive month of gains.
If we do sink lower in October, the catalyst can easily be the lack of top-line growth in earnings reports. However, if top-line growth is present, it can be another factor driving the market up in October.
To play devil's advocate, I must point out that six months after the market bottomed in 1987, the market was 21% higher. After the 2002 bottom, it was 24% higher. Today, we are 58% higher than we were in March. This is a significant jump.
To prepare investments for October, consider diversifying with a prudent amount of truly non-correlated asset classes like Treasury Inflation-Protected Securities (TIPS), commodities such as precious metals, managed futures and inverse funds.
If you have already pulled significant assets out of the market and are sitting on the sidelines, get back in but not all at once. Dollar-cost-average back into a diversified portfolio in order to avoid buying in on the worst day of the year, and consider tactical asset allocation programs for a small percentage of your portfolio.
On the fixed income side, TIPS is a good way to get some income and inflation protection. The Fidelity Floating Rate Bond Fund still looks attractive. Blackrock Global Allocation is a wonderful fund with multiple asset classes.
For equities, Tom Soviero and some of the rest of the folks over at Fidelity Leveraged Company Stock Fund, are some of the best in the business, as is the team running the Kinetics Paradigm Fund.
In conclusion, it is inevitable that a correction will occur in the market at some point, but research shows that an October correction is unlikely. A 3% to 5% pullback is conceivable for October, but do not prepare investments for a major selloff. You will regret it.
Consider the following:
We have not yet recovered fully from 2008. The market rebound after the crash of 1987 did not see a correction of 10% until 1990, which is more than two years later. Moreover, that correction was after "only" a 35% drop from top to bottom. At present, we are only six months removed from a 55% drop in the market.
October may be a negative month, but it's usually more in the range of 3% to 5%. The Octobers of 2008 and 1987 were the two biggest October sell-offs of the last 30 years, but each was preceded by a negative September. This year, September was positive.During past October sell-offs, the month didn't represent the first wave of the attack. May and June often paved the way. October then stepped up to wipe out the survivors who believed the worst was over. Again, we did not see major selloffs in May or in June. In fact, this past June marked the fourth consecutive month of gains.
If we do sink lower in October, the catalyst can easily be the lack of top-line growth in earnings reports. However, if top-line growth is present, it can be another factor driving the market up in October.
To play devil's advocate, I must point out that six months after the market bottomed in 1987, the market was 21% higher. After the 2002 bottom, it was 24% higher. Today, we are 58% higher than we were in March. This is a significant jump.
To prepare investments for October, consider diversifying with a prudent amount of truly non-correlated asset classes like Treasury Inflation-Protected Securities (TIPS), commodities such as precious metals, managed futures and inverse funds.
If you have already pulled significant assets out of the market and are sitting on the sidelines, get back in but not all at once. Dollar-cost-average back into a diversified portfolio in order to avoid buying in on the worst day of the year, and consider tactical asset allocation programs for a small percentage of your portfolio.
On the fixed income side, TIPS is a good way to get some income and inflation protection. The Fidelity Floating Rate Bond Fund still looks attractive. Blackrock Global Allocation is a wonderful fund with multiple asset classes.
For equities, Tom Soviero and some of the rest of the folks over at Fidelity Leveraged Company Stock Fund, are some of the best in the business, as is the team running the Kinetics Paradigm Fund.
In conclusion, it is inevitable that a correction will occur in the market at some point, but research shows that an October correction is unlikely. A 3% to 5% pullback is conceivable for October, but do not prepare investments for a major selloff. You will regret it.
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