October Low Could Signal Rally

Over the last 120 years, the Dow Jones Industrial Average has gained an average of 6.8% from its lowest October close through December 31st, writes Mark Hulbert in last week’s MarketWatch. Given recent dips, we could see a “significant rally through the end of the year,” according to Hulbert. He contrasted post-low monthly gains going back to 1896 and found that those following October lows are the largest.

This pattern, Hulbert writes, has led many to refer to October as a “bear killer,” a claim supported by Ned Davis Research data that shows no fewer than eight of the 35 bear markets since 1900 having ended in October. If these were random occurrences, he argues, “we would expect fewer than three of the last century’s bear markets to have ended in October.” While other Wall Street circles view the month of October as a “bull killer”, Hulbert says there is “little historical evidence for such a claim. In the Ned Davis Research calendar, for example, just one bull market since 1900 has come to an end in October—barely a third of what you’d expect assuming randomness.”

Hulbert explains that while these statistics offer no guarantee that a rally is imminent, he says “it’s worth remembering that October weakness is not, in and of itself, something to be afraid of.”