Halloween is fast approaching…
It’s a joyous night for kids. They’ll get plenty of candy.
However, if you’ve followed the markets for any length of time, you know October is much scarier for the markets…
In short, throughout history, October is known as a month of crashes and market blowouts.
And the thing is… many investors think the pain ends after October.
That might make sense on the surface. After all, you would think that stocks can’t fall much farther after they’ve already crashed.
But as I’ll explain today, that isn’t always the case. And it’s particularly relevant right now…
We’ve experienced some extremely volatile days in recent weeks. So as the current bear market continues, let’s try to answer a simple question today…
Does the pain end after an October crash?
First, we’ll look a little deeper for clues…
We’ll start with the most famous October crash – the Great Crash of 1929. That crash led to the Great Depression…
The market fell hard in October 1929. But importantly, its massive decline that month didn’t signal the end of pain for stocks. The selling continued until 1932.
In other words… the next bull run didn’t start until two and a half years later.
Now, maybe you’re thinking, “Well, that’s obviously a one-off, extreme event.” But the thing is, a similar scenario played out in 1974…
The entire year was rough for stocks. But the fall of 1974 was particularly terrible. And by the time October rolled around, stocks had lost nearly 50%.
The markets didn’t find their upward momentum again until December 1974. Obviously, a few months is a lot faster than a few years. But it’s still a lot longer than “after the initial crash, expect stocks to soon head back up.”
In 1987, the markets experienced another October wipeout. Today, we remember that event as “Black Monday.” And frankly, the setup was similar in many ways to right now…
Inflation was hot. Economic growth had stalled. And the strong U.S. dollar was wreaking havoc on international sales as well.
Ultimately, it caused valuations to expand to unsustainable levels. And once again, it took months for the market to find its footing after the October blowout occurred.
Just a few years later, the market fell 20% in a short span ending in October 1990. While it started to turn around in the middle of that month, things didn’t really get going until the next year.
This pattern even played out in 2008…
The market plunged 40% that year – mostly in October. But in this final example, the market didn’t hit its lowest point until March 2009. That was roughly five months later.
Of course, as we know now, that recovery became the longest-running bull market in history.
So my takeaway is simple…
Unfortunately, we can’t know for sure exactly when the pain will end after a market crash.
Bear markets are long, drawn-out processes. And they’re unpredictable… A specific timeline or playbook doesn’t exist.
Flashes of positive days are enticing. And the “fear of missing out” can trap you.
The problem is that markets can still sell off even further. And history shows us that it can take the market months – and sometimes, years – to process a big October blowout.
No one should try to call a bottom in October.
Instead, we’ll keep watching the Power Gauge. It will show us when the pain is over.
And when it turns in our favor, we’ll be ready to put money back into the broad market.
Good investing,
Pete Carmasino
