October is often associated with spooky events and it seems that stocks are not exempt from this reputation. Throughout history, some major market crashes and financial crises have occurred in October, making investors wary of what this month may bring.
One notable event that took place in October was Black Tuesday in 1929, which marked the beginning of the Great Depression. Another infamous event is Black Monday in 1987, when the stock market experienced a severe crash. Additionally, the early stages of the 2008 financial crisis also unfolded in this month. These examples serve as a reminder that October can be a challenging time for investors.
With just five days into the month, October 2023 has already proved to be a chilling one for the stock market. Investors are advised to proceed with caution before checking their 401(k) accounts, as the current trend seems to be heading downward.
However, it is not all doom and gloom. Thursday was a relatively uneventful day for stocks, with the S&P 500, the Dow, and Nasdaq all closing down by less than 0.2%. This small decline may offer a glimmer of hope amidst the current rough patch.
On the other hand, the Dow has been experiencing significant losses over the past five trading days, shedding over 760 points or 2%. These declines have pushed the index back into negative territory for the year, raising concerns among investors.
One factor driving the recent market action is the behavior of government bonds. Stocks often struggle when the yields on government bonds are high because investors can seek high returns on less risky assets. Currently, bond yields have been elevated, posing a challenge for the stock market.
The last time yields on 10-year US Treasury notes were this high was right before the Great Recession, adding an extra layer of concern. This relationship between bond yields and stock market performance has been observed throughout history and is particularly relevant in the current market environment.
To better understand this relationship, it is necessary to grasp the concept of bond yields. Treasury notes are essentially IOUs from the government, and investors receive interest payments, known as yields, in exchange for lending money to the government. When bond prices rise, yields fall, and vice versa.
The rise in official interest rates over the past year and a half has led to higher expectations for returns on bonds. As a result, investors have been incentivized to sell their existing bonds and purchase new ones with higher interest payments. This dynamic has been exacerbated by the belief that the Federal Reserve will maintain higher rates for longer than initially anticipated.
Simultaneously, the government’s increasing need for financing has led to the issuance of more bonds, which has put downward pressure on prices. This, in turn, affects market sentiment and contributes to the current downward trend.
Although the stock market has faced unsettling times in the past, it is important to remember that these challenging periods are often followed by recoveries and opportunities for growth. Investors should remain cautious but also keep an eye out for potential investment opportunities that may arise.
In conclusion, October has a historical association with market downturns and financial crises. The current rough patch in the stock market, influenced by elevated bond yields, has raised concerns among investors. However, it is crucial to maintain perspective and consider the potential for future recoveries and growth. By staying informed and vigilant, investors can navigate through these turbulent times and capitalize on opportunities that may arise.