By Carol Buss

October 2019 did not live up to its spooky billing, and the S&P 500 was up 2.04% for the month. October has a bad rap because there have been some very steep drops in the stock market in the month, most notably, in 1929, 1974, 1987, and 2008. In addition, major changes in the trend of the market have occurred in October. Despite its negative image, the average return for October during the last 50 years has been a positive .647, and there have been more up years than down years (43-27).

I was correct in my prediction that this October would not be a repeat of last year’s major decline(-7.33%), principally because this year many stocks are just not as expensive as last year and were not priced for perfection. I did some primary research on the 505 stocks that comprise the S&P 500 index, and discovered that, as of October 16, 2019, about 57% of those stocks were either in a correction (down between 10-20%) or in a bear market (down at least 20% or more). This means that the record-breaking increases in the Dow, S&P & Nasdaq have not lifted all boats, with a few names accounting for much of the gains. Expectations have been low by professional analysts and individual investor sentiment has been at multi-year lows. This is not the stuff that a market reversal to the downside is made of. Third quarter earnings did not have a high bar to hurdle, and stock prices have followed positive earnings surprises to the upside.

As has been the case for the last 15 months, October 2019’s positive bent was primarily due to a net positive attitude about the progress of the U.S./China trade talks. The month started out with dampened expectations, was up and down in the middle of the month, only to finish the last days of the month on a positive trend with news that the deal could be signed in November.

Positive and negative economic news was in abundance, which also swayed the direction of the market in October. The good thing was just like the one bowl of the three bears’ porridge, it turned out to be “just right”, not too hot that the Fed wouldn’t cut rates, but not too cold that indicated an imminent recession. The month did start off on a scary note. The worst day in six weeks on October 1st was due to the ISM Purchasing Manufacturing Index’s declining to 47.8, the weakest number in a decade. Recession worries also increased because jobless claims increased to 219,000, although low historically, and affected by the GM strike. However, what a difference a few days make, when the report for September non-farm payrolls increased to 136,000/month and the unemployment rate declined to 3.5%. Other economic reports during the month showed inflation to be tame, import and export prices offsetting each other, existing home sales and consumer confidence declining, but somewhat better than expected. This “just right” economic status enabled the Federal Reserve on Wednesday, October 30th, to cut rates a ¼ of a point (warning however that future cuts would be more measured), bolstering the market.

Earnings, what should be the most important factor when determining stock prices, did not start to be a real factor until about October 22nd, when earnings reports for the third quarter of 2019 got underway in earnest and started to dominate to headlines. Results were mixed, but for the most part were better than expected.

Well that’s all folks, a summary of the market in October, 2019. Overall, it was a pretty tame and positive month, despite worries to the contrary.