October is Known as a Volatile Month for Stocks, and This One Was No Different

October is Known as a Volatile Month for Stocks, and This One Was No Different

Oct 31, 2018

October is traditionally known for volatility, if not downright disaster, when it comes to the stock market. As the Harvard Business School blog describes it:

October has traditionally been a time for market disasters. On October 29, 1929 – known as Black Tuesday – the market fell 90% in the event that would trigger the Great Depression. On October 19, 1987 – known as Black Monday – the stock market fell by 22% in one day. The financial crisis of 2008 brought a stock market plunge that began on September 29 of that year and continued through the first week of October.

And this October has decided to live up to its reputation, with a drawdown on the S&P 500 of about 9% through the market close on Monday. The market has actually had a fairly volatile year overall, especially when compared to the gentle upward march of 2016-17. While the S&P 500 was up just over 10% for the year as of the end of September, it had hit a similar level towards the end of January, only to dive into loss territory in April and now again at the end of October. Interestingly, a deeper examination reveals that a small group of giant tech companies drove a significant portion of the gains on the way up. In fact, just four companies–Apple, Microsoft, Amazon and Google–created 40% of the gains for the year through September 30th.

Source: Bloomberg, year-to-date as of 9/30/18

 

The next chart clearly illustrates the narrowness of this market. It breaks down the S&P 500’s return by market sectors, again through the end of September. The top two sectors, tech and consumer discretionary (which is driven largely by Amazon), strongly outpaced the rest of the market.

Source: Bloomberg

 

However, the story has changed dramatically since then. Just as tech giants led the market higher for most of the current bull market, they also stumbled together as the market turned downward in October. The “FANG” stocks as they are called–Facebook, Amazon, Netflix, and Google–fell about double the broad market’s loss during the same period.

Losses Mount for Tech Stocks in October 2018

 

Among other things, this is why diversification, discipline, and taking a long-term viewpoint are important in investing. Chasing recent winners can work for a while, but it often ends poorly unless investors are careful. As a recent study implied, resisting the urge to chase winners and instead sticking to a well-designed investment plan are key factors to long-term success.

 

Authored by:

 

jon-houk-headshot

 

 

   

Jon Houk, CFP®

Wealth Advisor, Portfolio Manager

Wealth Management, Investment Strategy

 

Disclosures:

The above article is intended to provide generalized financial information; it does not give personalized tax, investment, legal or other professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other matters that affect you or your business.