Market Extra: A ‘jinx month’ for the stock market is about the get under way — that’s very bad news for small-cap investors

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September has shaped up to be a relatively bullish month for the stock market despite a number of scares, including an impeachment inquiry and a rip-roaring IPO market that has petered out, but investors may be wondering if October will live up to its historic billing as another weak period for equities.

The Dow Jones Industrial Average DJIA, +0.36% has gained 2.1% so far in September, the S&P 500 index SPX, +0.50% has climbed about 1.8%, while the Nasdaq Composite Index COMP, +0.75% is set for a 0.4% monthly advance.

Not too shabby for a month that has produced an average S&P 500 decline of 0.5% since 1950 and a loss of 1.07% over the past two decades, according Ryan Detrick, senior market strategist at LPL Financial.

However, the worst may not be over for markets in October, during what has been described as the “jinx month” for stocks by Stock Trader’s Almanac.

“It is widely known as a bearish month, mainly due to the fact it has had huge crashes in 1929, 1987, and 2008 — but overall it is a fairly average month,” said Detrick, who said that if you exclude those seismic events — the stock market plunge that led to the 1929 Great Depression, the 1987 crash and the 2007-’08 financial crisis — which coincidentally all happened in same month as Halloween, October hasn’t been as frightful of an investment period.

“Since 1950, it is up 0.8% on [average], which ranks as the 7th strongest month. Lately though it has done much better, ranking 3rd over the past 10 and 20 years,” he said (see table below).

Source: LPL

Detrick also noted that poor equity performance in an October that has preceded an election year has been skewed by the historic 1987 crash.

“Pre-election years, though, it ranks 11th, but this is mainly due to losing nearly 22% in 1987 — so that skews things,” he said.

Source: LPL

Now, for small-capitalization stocks, the narrative has been unequivocally bone-chilling. As measured by the Russell 2000 index RUT, +0.19%, small-caps have averaged a decline of 1.08% in October and the month is its worst — hands down, according to Dow Jones Market Data. The Russell 2000 finishes lower in October 47% of the time (see table below):

Source: Dow Jones Market Data

That being said, perhaps the Russell 2000 can buck that trend after coming off a gain of more than 2.3% in September. Last year, the small-cap benchmark put in its worst decline since 2008, tumbling 10.91%.

However, markets have been wrestling with an impeachment inquiry against President Donald Trump, a trade scuffle between the U.S. and China, and a regime of monetary easing across the globe in the face of worldwide economic weakness. A downturn for the once-hot market for initial public offerings, with WeWork-parent The We Co. WE, +0.00% shelving its plans for blockbuster public listings in the face of deteriorating appetite, also has hurt market sentiment.

Perhaps with all those issues swirling in plain sight, stock investors have fewer chances for a big surprise and equity benchmarks can manage to scare up further gains in October.