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What are the Facts?

October 3, 2011 – 5:03 pm

Many people think that October is historically the worst month of the year for stocks when in fact it is September that has that distinction. The misconception is because October has had some of the largest drops in stock prices such as the one in 1987 when the market fell 20% in one day. Actually, October traditionally marks the bottom of the market and the beginning of an up market.

Another data point is that according to Barron’s the S&P 500 lost 14.3% in the third quarter just passed. The number of quarters that have lost 10% or more in a quarter are 15 since 1964. In the subsequent 15 quarters to those down quarters the market rallied, 12 of them with an average return of 10%.

No one can predict the market but you can buy strong stocks in weak markets because stock prices move up and down with earnings. Earnings are still rising. There is excess fear that they are going to fall, that we are slipping into another recession. The evidence of that happening is not there. In fact evidence out as recently as this morning with the September ISM report, car sales and August construction spending shows us an economy that is recovering from the soft patch in the summer, not falling into recession.

There is plenty to worry about with the Euro zone issues, China’s effort in slowing its economy which appears to have worked, and politics in the U.S. over the debt debate. However, there is one more fact concerning the history of the stock market: it crawls up a wall of worry.

Good Trading
Steve Peasley

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