The start of something? Or the end?

Thursday, 4th October 2018

The start of something? Or the end?

The month of October gets a bad rap….

As far as the markets are concerned, October is the bad-boy on the calendar….

Investors and financial commentators associate the month with calamity, catastrophe and sheer terror….

Memories are long. Old wounds run deep. Some scars never heal….

  • Be reassured – or brace yourself….

It was the month of October that produced Black Monday in 1987 – and across that one month, the FTSE All-Share Index shed 27% of its value….

And in the year of global financial crisis that was 2008, the October curse (if that is what it is) struck again – with the FTSE All-Share Index losing 12%….

But we only need check the facts to discover that October’s reputation is entirely undeserved – a product of the media’s rabid imagination rather than hard-and-fast reality….

There is no need to be fearful….

Since 1990, the month of October has delivered losses on just half-a-dozen occasions. And the market has dropped just once in the month of October since 2010….

The historic record should reassure you that the market is as safe as houses during October….

Or you can take it as a sign that the return of the curse of October is well-overdue….

  • We got through the worst month unscathed….

Never mind October. What will be will take care of itself over the next few weeks….

The month that really should give you a case of the jitters is the one we just closed the door on – September….

Mark that month off in your diary for next year. Put a red line under it….

September is the real worm in the apple – the worst of all months as far as the stock market is concerned….

Here’s something you won’t know – and something I only know because I keep a man in a cage in the office to crunch the numbers and come up with these interesting tidbits of data….

The average return of the FTSE All Share Index in the month of September since 1990 amounts to -1.2%….

Strip the first 10-years off that time-frame and go from the turn of the century  and the figures get worse – an average return of -1.6%….

Those figures make September the worst month of all for the FTSE All-Share Index – a record and reputation bolstered by the fact that the month of September has produced losses of 8% or more on that Index (big losses in other words) three times since 2000….

We got off light this time around. September 2018 produced more losses for the FTSE All-Share Index – but only to the tune of -0.28….

  • Prevailing mood and sentiment….

In recent issues of Money Truths, we have been focused on one of our favourite topics – mood and sentiment….

We like to know which way the wind is blowing. And how much bend there is in the trees….

We know that a good deal of the professional prognosticators – the expert players and the pointy-heads who get paid to tell us what’s what and how the future will unfold – have been feeling a bit gloomy about the immediate prospects of the economy and the markets….

But we also know that the markets aren’t really paying attention to these long-faced harbingers of doom….

The stock market is short of its all-time high-point but is still plenty high-enough having been driven by a decade of warm winds produced by the loosest monetary policy in history….

It is as though investors believe the stock prices of companies and the economic climate those companies must operate in are completely disconnected from one another….

Or maybe complacency has set in. Maybe the party and the dancing has gone on for so long, perpetually bullish investors have forgotten that the music can be turned off….

Whatever, the bulls are winning out. Markets might have a long way to fall. But right now, they stand steady and firm. And investors with skin in the game might well be looking forward to next month….

  • Halloween – a signal to load-up?

November is traditionally a month when a good portion of investors like to load-up on stocks. It’s called the Halloween effect….

You might have heard of this saying which is based on the same idea: ‘Sell in May and go away….’

The ‘buy in November’ strategy grows out of the theory that the period from November to April produces significantly stronger average growth in stocks than the other months….

If you play the Halloween effect, you buy in November, sit on your holdings until the 1st of May and then sell-up and wait for next November….

It’s a nice theory. But I’m not sure it pans out in practice. Especially if we narrow things down to just November….

We’ve already seen that October has a bad reputation that might not be entirely deserved. I wonder if November’s reputation as a good month to invest in stocks is equally misleading….

The fact is that November has only produced a positive return on the FTSE All-Share Index 50% of the time since 1990. In other words, losses during November are as common as gains….

But facts are only facts. And facts are often trumped in the markets by feelings and theories….

If the theory is that buying stock in November produces gains, and investors feel that the theory has legs, then investors will increase their exposure to market – if they don’t already take that step this month in preparation….

  • Who knows?

It might work out. Stocks might grow again in November. They have in 14 of the last 28-years, after all. That suggests a 50/50 chance of success – a bit like a coin toss. And you might like those odds….

By the time next May rolls around, the bulls might be sitting on even more gains that the rest of us (or is it just me?) have missed out on….

Or maybe, it will turn out a different way….

Maybe the usual November buying spree will be a bit different this time round. Maybe the buying will be confined to the big institutional investors. Maybe the smaller-scale private investors like you and I and the guy next door will sit it out….

There are signs that confidence amongst ordinary retail investors isn’t flying quite so high as market-levels might suggest….

Hargreaves Lansdown, the investment brokers, compile an internal index of retail investor sentiment. They’ve been doing it since 1995….

Last month, according to the index, retail investor confidence plummeted a full 4 points to a score 58….

Some context is required. That’s an all-time low reading on the Index. The lowest reading in the last 23-years….

And it’s a full 3-points lower than the previous low-figure of 61 recorded in late 2008 – when the global financial crisis was in full-swing….

It’s a figure that suggests smaller investors with skin in the game are beginning to feel distinctly bearish. And it could signal the start of something. And the end of something else….

That’s how it looks from here….

All the best,

Money Truths