Our content in this venue is sometimes informative (we hope), sometimes clarification of headlines, sometimes educational, sometimes humorous and self-deprivation, and in this post more of a diary for our own education and collective remembrance.
Why October can sometimes be spooky for Capital Markets?
Probably the spookiest October that many may only read about is October 1987, but long-term historians will note that while the fourth quarter is generally a good quarter for capital markets (likely not the case this year with a FOMC yielding an interest rate rocket – ok, digressing), October can be rather spooky.
Year End for Many Mutual Funds – A very large number of mutual funds in the order of North of 20% have their year-end in October. This creates unique pressures across-the-board both on stocks that have done bad and false increases on stocks that maybe have done good as mutual funds close their books down for the year. As a sidenote last month, September garnered over 10%-year end mutual fund companies.
Black Out – With the official start of earning season being early October, publicly traded companies are restricted from purchasing their own stock. As of the most recent reading approximately 30% of exchange volume was estimated to be company buy backs…. Yes, your read that correct…30% of daily volume … Wow! Once the black out commences, by law companies are no longer allowed to purchase their company stock until a certain date after their public filing. The purpose of this is of course to cut back on any perceived manipulation. This absence of a normal one third volume of trading can make for “thinner” markets and spookier.
Confession Time – The Clock has run out – Publicly traded companies, many of which are on a fiscal year (tax year ends 12/31), the final quarter becomes the quarter of confession especially If earnings are skewed much differently than what capital market participants expect. This force is a pseudo-named “Confession”, as the calendar has just run out of rope forcing the final grade for the year in some cases.
Seasonality – As mentioned above, weird things have happened in October, creating a weird feed back loop. This means, that by knowing sometimes things can get spooky in this month, market participants and thereby Capital Markets can get spooked easier!
Mix it all up and we get a witch’s Brew of spooky times in October.
But guess what?
We have let you know in advance, and we are not calling for a Spooky month, but there is a reason this post/memoir/diary is coming out now…. Just after a few spooky huge up days in Capital Markets…
Boo… We have your back!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth