In case you haven’t noticed, we have experienced increased market volatility in October. What is going on? Why is this happening? Will it continue? Let’s review what has happened recently in the markets and our economy:
- The S&P 500 just registered its largest quarterly gain since the end of 2013 with an eerily calm, steady climb higher
- The Federal Reserve continued to raise rates and the 10-year Treasury yield hit a 7-year high
- U.S Employment data continued to show strength with the unemployment rate nearing a 50-year low
- Trade tensions between US and China continue to mount
The month of October has historically been more volatile than other months of the year. And, some of the most notorious market moves have occurred in October (1929, 1987 and 2008).
Below is a chart showing the number of 1% changes in the S&P 500 during different months of the year. As you can see, October tends to be the month that we see the greatest market volatility.
The important thing to remember is market volatility is normal. The stock market will fluctuate UP and DOWN, we cannot control or predict it. For our investment strategy, we try to focus on what we can reasonably control and predict…the income. We focus on owning high quality companies that pay dividends and have the potential to increase their dividends, no matter what the daily market averages are doing. And, if you are reinvesting the dividends, then a down market can actually be beneficial because you can accumulate additional shares at lower prices, which can potentially increase your income in the future.