“A scarecrow in a yellow moon … pretty soon the carnival on the edge of town … King Harvest has surely come.” from “King Harvest” as performed by The Band
We Floridians are in the home stretch. If we can just make it to November, we tell ourselves, we’ll have survived another year without an Andrew, a Charley or an Ivan. We’re close now. Knock on wood.
Many investors also long for the arrival of November 1. Of the 10 biggest single day Dow point losses in history, six have occurred in October. Let’s consider three.
The infamous 1929 crash actually occurred over a two-week period, beginning on Oct. 24, the day known as “Black Thursday.” The Dow Jones Industrial Average eventually fell an incredible 90 percent from its previous 1929 high, and it took 25 years for the DJIA to recapture its top number prior to the plummet.
Forty-eight years later, in 1987, markets fell for five straight days, and a scary selloff occurred on Oct. 19, which earned the moniker “Black Monday.” The DJIA fell 22 percent on that day. While the impact was global, with 19 of 20 of the world’s largest markets losing at least 20 percent, equities regained their value fairly quickly.
The subprime mortgage crisis and incredible individual debt levels, combined with loosened lending regulations and minimized regulatory control on Wall Street, created exceptionally vulnerable economic and market conditions in October of 2008. On Oct. 6, the Dow closed under 10,000 for the first time in four years. By Oct. 10, the intraday trading level was down to 7,882. It took over five years for investors’ holdings to return to previous levels.
Coincidences? Probably. Several record setting single day market increases have also occurred in October Regardless, corrections do occur. Markets with securities that appreciate exponentially can be very vulnerable to crashes. Additionally, markets rarely experience endless upward growth without some intermittent pullbacks.
Recent volatility is probably a good reminder that most balanced portfolios contain some fixed income instruments for a reason. Growth is great, when investors can achieve it. But in downturns, many portfolios are well served to hold some defensive investments, especially for those nearing or in retirement.
Downsized growth projections in both Europe and China have created market headwinds. And of course the Ebola scare has been a market wild card. Meanwhile, though, recent domestic industrial production numbers were reported at their highest levels since 2012 and initial U.S. jobless claims are at their lowest rate since 2000. Cheap oil will act as a tax break for US consumers. As the dollar strengthens against foreign currency, GDP and spending may increase. The economy and the market are separate entities, but continued healthy national financial wellness reports may eventually lift the market in its rising tide.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.