Should You Make Any Changes to Your Portfolio With October Right Around the Corner?
Written by
John Csiszar
Edited by
Levi Leidy
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Stock market investors have enjoyed a successful 2024 thus far, with the S&P 500 returning 18.42% year-to-date (YTD) as of Aug 31. That’s nearly double the long-term average annual return of 10%. And with the Fed slated to begin cutting interest rates in September for the first time since 2020, the market has good reason to be rallying.
But markets never go up in a straight line, and with the arrival of a traditionally weak market season, a pullback wouldn’t be too surprising. So, should you make any changes to your portfolio with October right around the corner? Here’s what you should know.
Why Are Investors Afraid of October?
October has a reputation of being a scary month for stock market investors, and perhaps rightly so. After all, some of the biggest market drops in history, including the stock market crash of 1929, the Black Monday crash of 1987 and the bank panic of 1907 all occurred during October.
However, there’s no actual reason why October should be feared more than any month, except for this emotional connection to prior crashes that just coincidentally happened in October. While it’s true that emotions can affect the market, and some panicked investors might sell out and impact prices, the reality is that historically speaking, on average, October isn’t really that bad of a month for the stock market.
In fact, from 1928 through 2023, October posted an average annual gain of 0.52%. While that only makes it the ninth-best month for returns, on average, it’s still a positive return, and certainly nothing to be afraid of.
But, What About September?
September is often overlooked when it comes to “scary” months for the market, but in reality, September is the worst month of the year for the S&P 500, at least historically. The average monthly return for the S&P 500 in September is actually -1.17%, making it one of only three months that post negative average returns. The other two, February and May, post minimally negative average returns of -0.14% and -0.11%, respectively, meaning September is really the month to look out for.
It may be true that September is a bad month on average because investors are afraid of October and sell out before it arrives. This could make September’s poor performance something of a self-fulfilling prophecy — but ironically, it also means that investors don’t really have anything to fear regarding October itself.
Should You Make Any Changes?
Regardless of any seasonality or emotional component to the market, as a long-term investor, you should avoid any temptation to change your portfolio in September or October. For starters, although September is a losing month on average, and October has had some rough days historically, there is no way of predicting what will happen in the future. There have been plenty of Septembers where the market roared higher, and trying to time it based on the time of year is a fool’s game. In September 2020, for example, the S&P 500 was up a whopping 5.5%, a huge gain that would have been terrible to miss.
Now, it’s certainly true that the market could be quite volatile in September and October 2024, for a number of factors. First, investors are banking on a Fed rate cut in September, and markets are likely to react when the Fed makes its announcement on Sept. 18. Second, the presidential election is on Nov. 5, and as it appears to be a close race, the uncertainty regarding who will win could keep markets on their toes in the preceding months.
But even if the market swoons in September and/or October, this should be seen more as an opportunity than a setback for long-term investors. If the market drops, it could be a great time to add additional money to your portfolio and take advantage of the “sale” on stocks. Although the future is unpredictable, the market has never in its entire history failed to make a new high after a selloff of any magnitude.
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