October often makes investors nervous, since that is when some of the biggest crashes in stock market history happened – but this year the market seemed unstoppable.
The Standard & Poor’s 500 index closed at a record high seven times and ended the month up 4.5%.
The market climbed even after October began with the 16-day government shutdown and the threat of a potentially calamitous US default.
“The market didn’t waver in the face of the shutdown,” said Anton Bayer of Up Capital Management, an investment adviser. “That was huge.”
After being rattled by a series of down-to-the-wire budget battles in recent years, investors have become inured to the ways of Washington politicians.
Instead of selling stocks, they kept their focus on what they say really matters: the Federal Reserve.
The central bank is buying US $85bn of bonds every month and keeping its benchmark short-term interest rate near zero to promote economic growth. The Fed stimulus has helped generate a stock market rally that dates to March 2009.
With October’s gains, the S&P 500 is now up 23.1% for the year. The Dow Jones industrial average is 18.6% higher, and the Nasdaq composite index is up 29.8%.
Some analysts say the precipitous rise in stocks may now make the market vulnerable to a drop.
“Because stocks have gone up so much, people will get nervous about another big sell-off at some stage,” said David Kelly, chief global strategist at JPMorgan funds.
Some investors will be relieved to see October behind them. The Stock Trader’s Almanac refers to October as “the jinx month” because of its fraught history.
The Dow lost 40 points on October 28, 1929, a day that became known as Black Monday and heralded the start of the Depression.
Almost 60 years later, on October 19, 1987, the Dow suffered its biggest percentage loss, plunging nearly 23% in the second Black Monday. The index also plummeted 13% on October 27, 1997.
There was no such drama on Wall Street yesterday. Stocks were mostly flat as investors took in disappointing corporate earnings.
The S&P 500 slipped 6.77 points, or 0.4%, to 1,756.54. The Dow gained 73.01 points, or 0.5%, to 15,545. The Nasdaq composite fell 10.91 points, or 0.3%, to 3,919.71.
Avon slumped 4.90 dollars, or 21.9%, to $17.50 after the beauty products company reported a third-quarter loss, reflecting lower sales and China-related charges.
The company also said the Securities and Exchange Commission is proposing a much larger penalty than it expected to settle bribery allegations.
Visa fell $7.15, or 3.5%, to $196.67. Its quarterly profits fell 28% as it set aside money for taxes. Visa also expects a slow recovery for the economy.
Overall, company earnings are beating the expectations of Wall Street analysts and lifting stock prices.
Companies are benefiting from low borrowing costs and stable labour expenses, which are enabling them to boost earnings even as sales remain slack.
Earnings for companies in the S&P 500 are expected to grow 5.1% in the third quarter, according from S&P Capital IQ. That compares with 4.9% in the second quarter, and 2.4% in the same period a year ago.
The stock market is likely to keep climbing as long as the central bank keeps up its stimulus, Mr Bayer said.
But stocks could fall as much as 20% when the Fed starts to cut back on its bond-buying programme, he said.