October in the history has been detected as especially volatile for markets, but this reputation should be viewed in perspective as it stems from just three events.
The reputation is fitting as it is the worst month for single day falls in the FTSE 100 and since 1984, seven out of the 10 largest corrections have happened in October (see table below).
However, October remains a good month for investors as it is the sixth best month of the year with the FTSE 100 returning an average of 0.76 since 1984. On average, the month also delivers a negative return less than one quarter of the time (23.5%).
But October’s reputation is one influenced by history. Stretching back to 1929, it relates directly to three key events: the Great Depression, the 1987 crash and the 2008 global financial crisis.
Let's say that October’s reputation for volatility is well earned but should be kept in perspective as it really relates to just three events.
Nine of the 10 largest falls in the FTSE 100 were linked to either the global financial crisis or the 1987 crash. This should be a reminder to investors that extreme volatility in markets is rare and if they are able to remain calm, it is likely to pass.
In October 1987, markets plummeted around the world as they saw the largest percentage fall in the history of the FTSE 100, with the events of Black Monday and Black Tuesday.
More recently, October 2008 saw the worst of the global financial crisis as the western banking system was on the verge of collapse. Central banks and governments struggled to get ahead of events resulting in three of the largest one-day falls in the FTSE 100 since 1984.
However excluding the 1987 crash and the 2008 global financial crisis, returns in October would rise to an average of 1.95%, the second-best month performance for markets.
At present there is nothing on the horizon to suggest an extremely volatile October, but markets are unusually settled and volatility is likely to pick up again. Events can change quickly so it is important to have a portfolio which can function in a range of conditions.