October Volatility Got You Spooked? Keep Calm and Don't Jinx Yourself
For reasons unknown, October has historically been the most volatile month for the stock market—by a goodly margin. Between 1950 and the end of 2017, the S&P 500 Index saw as many as 362 trading days during the month of October in which the market moved up or down more than 1 percent. That’s 58 more days than the second-most volatile month, August.
When I say “for reasons unknown,” I really mean it. Though many have tried, nobody’s been able to give a satisfactory explanation as to why October can’t just straighten up and fly right like its 11 siblings. Presidential election uncertainty, quarterly reporting, seasonality cycles—they’ve all crumbled under close scrutiny.
And yet the “jinx month,” as it’s been nicknamed, has given us some of the very worst market crashes in history, including those in 1929 and 1987. Last year, October marked the start of a year-end selloff, with stocks plunging nearly 7 percent. In the first week of this October, the S&P 500 ended down more than 1 percent for two straight trading sessions.
Could the volatility be nothing more than a self-fulfilling prophecy? That’s the theory of Mark Hulbert, founder of the Hulbert Financial Digest. In a Wall Street Journal op-ed this week, Hulbert suggests that, because October is known for its wild mood swings, some investors may end up making rash decisions and “jinxing” themselves.
“Their expectation [of higher volatility] will cause premiums on both call and put options to increase,” he writes. “That in turn will lead to a jump in the CBOE’s Volatility Index, or VIX, since it is calculated based on those premiums.”
I think this is as good an explanation as any I’ve heard before.