A Great Month With Bad Press Since 1994, the Dow has ended October down nine times. That may sound bad, but it's really not. And there's an important asterisk here. First, over the past 25 years, data shows that the Dow ends October up 64% of the time. For comparison, the Dow has ended June and September lower 14 times since 1994. That means the market rises in those months less than half the time. Those are far more frightful months for investors, but they don't get anywhere near as much bad press. Now, looking at the above chart, we can see the scariest October for the Dow was in 2008 with a drop of 14%. The second-worst month was back in 1997. But we've had two drops of more than 5% in the past three years. And that October performance chart looks really spooky after 2000. But don't rush to blame Y2K. Here's where the asterisk for October returns comes in... As I've outlined in the past, Octobers in presidential election years are particularly dangerous. They're so bad that my advice for protecting your portfolio during these is a near-automatic recommendation to buy puts or inverse ETFs. The data here is pretty definitive, with drops in 1992, 2004, 2008, 2012, 2016 and 2020. That's almost every election year in the past three decades! There's often a lot of anxiety before that pivotal day in November. And that uncertainty - as the political divide has widened - has only increased during the past five elections. So if this were an election year, I'd tell investors to be afraid. But the trend in October is actually different from what investors tend to think. A Bronze Medal-Worthy Performance Traditionally, October is the start of a sweet three-month period for the Dow - October, November and December. And this rally is fueled by holiday cheer and consumer spending. During the past 25 years, the Dow has averaged a 1.36% gain in October. It wins the bronze for the best monthly performance over that span. The only months with better performances are November and April. But the Dow averages a 1% or better gain in each of the last three months of the year. And this momentum often carries all the way into May. (Though, I do have some choice words about January when we get a little closer.) The swoons in September are caused by palms sweating over third quarter earnings. Macro headlines come into focus. But by the time October gets underway and third quarter earnings season begins, that anxiety has faded. In turn, we're rewarded with the best three-month stretch of the year. Data doesn't show that October is worse than any other fretted-over month. In fact, it shows just the opposite (unless Americans are heading to the voting booths). So don't get spooked by September's scare. Instead, prepare for a rally from here on out. Here's to high returns, Matthew P.S. Do you have any thoughts on what we covered in today's article? Let us know in the comments below. | 
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