Will October End the Market's Slide?
The Dow jumped 330 points Monday as stocks continued to enjoy a strong start to October after five straight months of declines. Yes, it's still early, but even if memories of the crashes of 1929 and 1987 loom large, October has historically been a month that ends market slides and stocks begin to reverse declines, writes Jeffrey Kleintop, chief market strategist at LPL Financial.
If history holds up, markets have a high probability of ending the year in good fashion, Kleintop says in a recent note to clients. Over the past 50 years, whenever stocks have posted a double-digit quarterly decline, they typically rebounded 6 percent in the following quarter. Recall that the S&P 500 fell 18 percent in the quarter just ended.
"Out of the 16 times the S&P 500 has registered a double-digit loss during a quarter, 13 of those times -- or over 80 percent of the time -- the following quarter posted a gain and those gains averaged 9 percent," Kleintop writes.
See the table courtesy of LPL Financial below:
After Monday's rally, the blue-chip Dow Jones Industrial Average is up 7.3 percent in October. The broader S&P 500 has gained 8.7 percent so far this month and the tech-heavy Nasdaq Composite is up 9.9 percent.
That's an auspicious beginning for the final quarter of the year, which has usually been good for stocks -- and sorely needed after the sickening declines and volatility of the third quarter.
Markets have plenty of time left to have a decent fourth quarter and possibly save us from a dismal year. If history is any guide, it's still too soon to write off stocks for 2011. Long-term investors are likely only to lock in losses.
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