October Down 10%?

News or Noise?! Is a 10% October Pullback likely??

Tom Lee is a well respected and very intelligent market strategist. However, some of his calls for the last year have missed the mark. In April, Lee called for a rally in the S&P500 to 4400 to take place over the next month.  While directionally correct, it took almost 4 months and was led by a grind higher in Technology and FANG stocks not the energy and other sector stocks he had predicted.

Now, we have a call for a “window” for a 10% pullback in October. Now, it’s true that since 1989, the 3rd weakest 3-month period for stock market returns has come in the months of August through October. However, that period still averaged positive +1.92% return.

And since the Federal Reserve launched QE (Quantitative Easing) in the late 2008/early 2009, attempting to trade around this dynamic (e.g. I will sell and sit out that period and get back in later, e.g. yet another version of market timing!) has likely been harmful for most investors, particularly during QE induced, positive first year Presidential terms like 2021.

During the three previous first year Presidential term years of 2009, 2013, and 2017, each of the August through October periods yielded positive gains of 4.2-4.95% cumulatively.

Moreover, out of the 12 months after August from September through December in those years, there was only one month with a negative total return and loss, October of 2009, down around -2%.

Our view? We view the probability of a 10% decline this October as….noise.

Sources Article: https://www.cnbc.com/2021/09/06/correction-may-strike-stocks-after-record-september-tom-lee-.html

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