The month of October was epic. What started out as a month that looked like it would lead us into another recession, turned out to reward those who believed in it. The market volatility remained high, as investors tried to trade around the violent market swings. Here, we recap some of the major events in the market and ask, what can we learn from October? (For more of the history of markets and October, read October: The Month Of Market Crashes?)
TUTORIAL: Index Investing
Oct. 3 -Down 31.98 (-2.83%)
The first trading day of the month doesn't start out well, following a disappointing September. Although better than expected economic data was released, the troubles of Greece outweigh the positive news of the day.
Oct. 4 - Up 26.53 (+2.42%)
The S&P 500 hits a 52 week low of 1074.77, barely escaping bear market territory. This proved to be a bottom for the month of October. Large scale buying during the last hour of trading propelled the index higher, with a 2.42% gain. This will prove to be the beginning of a historic run to the upside for most of the month.
Oct. 7 - Down 9.57 (-0.82%)
After a 41 point run to the upside since the Oct. 4close, the index saw almost 16 points of loss, following ratings agency Fitch cutting the credit rating of Italy and Spain and keeping a negative outlook on their debt. Investors remain unconvinced that this rally is for real and use dips to take profits.
Oct. 11- Down 0.94 (-0.08%)
On one of the calmer days for the index, after the close, Alcoa (NYSE:AA) sets an ominous tone to kick off Q3 earnings season with a miss. Still, investors buy the market the next day sending the S&P to the upside.
Oct. 14- Up 18.93 (+1.58%)
The S&P ends an impressive week, finishing up 5.78% to close at 1,224.58. This will only be half of the gains posted for the month and a gain of 13.94% from the 1074 bottom reached only 10 days ago. (For future earnings releases, read 5 Earnings Season Investing Tips.)
Oct. 18- Up 24.63 (+2.05%)
The S&P opens at the 1,200 level for the first time since the beginning of August. Following a strong day to the upside, Apple (Nasdaq:AAPL) surprises with weaker than expected earnings. The stock will not recover from a large loss for the rest of the month.
Oct. 25- Down 25.14 (-2.00%)
The market is weighed down by a plunge in Netflix's (Nasdaq:NFLX) subscriber base, adding to an already epic downturn in their share price. After the close, Amazon (Nasdaq:AMZN) announces disappointing Q3 results, marking disappointing earnings announcements by three technology bellwethers.
Oct. 27- Up 40.62 (+3.27%)
Europe continues to weigh on the mind of investors, but this historic run moves 3% to the upside, despite desperate attempts by Sarkozy to convince China to provide funds to the EU Rescue Fund.
Oct. 31- Down 31.66 (-2.46%)
As much as investors had hoped for a strong close to the month, the S&P ended the day down 2.46%, in part due to MF Global filing for bankruptcy and continued European concerns. Despite the disappointing last day of trading, the index would end up 10.79% or 16.61% off of its 1074.77 bottom.
The Bottom Line
Although the market was up more than 10% for the month, that's only impressive if investors were able to capitalize on it. According to Barclay Hedge Fund Index, the average hedge fund performance in October was 3.72%, indicating that professionals were either unconvinced that the rally would continue, or found the market volatility difficult to navigate.
What should we learn from October? Possibly the most important observation to make is that investors would be best served to look past the market noise and invest for much longer time frames than just days. Violent market swings create a lot of commission for the brokers, but overtrading a volatile market rarely leads to impressive gains. (For more on trading, check out Are You Under Or Overtrading?)