It's October again, black October, the month investors respect and fear.
Yesterday's 266.90-point stock slide only underscores the month's infamy to many investors. After all, there's the Great Crash of October 1929, which achieved legendary status as the opening act of the Great Depression. Then there's Black Monday, October 1987, when a 23-percent drop spawned the potential for economic disaster that was deftly dodged by newly minted Fed Chairman Alan Greenspan.
Jittery investors have lived through several other October Dow drops. Among them: A 554-point plunge in 1997 and a 191-point skid in 1989.
Despite those headline-grabbing free falls, it turns out that October isn't the worst month for stocks. That honor falls to September, one study shows.
Even so, October retains its reputation as a dark month for stocks.
"It's more folklore than anything," said Bryan Olson, a director of the San Francisco-based Schwab Center for Investment Research, which conducted the study. "I'm not sure why this belief exists. There's no proof that this month is worse than any other month."
Indeed. The Schwab study, which looked at the 1926 to 1998 performance of the broader Standard & Poor's 500 index, found that stocks had an average monthly loss of 0.6 percent in September -- the only month of the year with a negative return. Over that 72-year stretch, October was the second-worst month: Stocks had an average monthly return of 0.3 percent.
This year, September stuck to its down pattern -- with the Dow Jones industrial average off almost 5 percent -- while October has to date lived up to its undeserved reputation: Stocks are down 3 percent.
Interestingly, in the 1990s, October has been the eighth-best month for stocks, with an average return of 1.4 percent -- better than March, April, June and August combined, according to the Schwab study.
Nonetheless, the occasional one-day haymakers dealt to investors in October cause them to view the month with a mixture of awe and fear. Even the stock market's first-line players can't explain why October boasts the most heart-clutching drops of any month.
"I wish I knew," says Barry Berman, managing director and head trader for Robert W. Baird & Co. in Milwaukee. "I know there has to be some common-sense reason."
As a trader, Berman admits being a bit quicker with the trigger during rocky rides in the market, as well as in months -- like October -- in which he believes the next problem could be just around the corner.
Some market-watchers, such as Doug Ober, head of the locally based Adams Express Co., a closed-end mutual fund, think October's occasional one-day disasters could be related to tax selling. Some regulations require mutual funds to distribute capital gains in the year those profits are earned, so the more skilled fund managers often sell their losers to offset some of their gains in order to shelter their customers from onerous tax burdens.
It's likely other institutional and individual investors do the same, industry insiders say.
Such speculation may well explain some of the mechanics behind the mishaps of October. But it doesn't account for the mystique accorded the month that's associated with witches and goblins -- and stock-market gremlins.
James K. Glassman, finance columnist and co-author of a new book that contends that the Dow could quadruple to 36,000 within three to five years, is dismissive. Except for January, when stocks often race forward after year-end tax-selling, one month of the year is pretty much the same as another for stocks, he says.