The S&P 500 bottomed in October of 1974 and 2002. How about now?(Daily 2-Min S&P 500 Commentary by Sidney Shauy)
October is often regarded as the most volatile month for stocks and September the worst month in terms of returns for stocks. On the other hand, November, December, and April are typically the best months. I usually don’t pay much attention to these things because the macro context is much more important than seasonality, if any. But we can take a look at this study made by Carson and R. Detrick. See chart. According to the authors of the study, 2022 was only the 3rd worst start to a year for stocks. The only two worst starts were 1974 and 2002. In 1974, the S&P 500 bottomed at 60.96 pts on October 4, 1974, returning -37.5% year-to-date. In 2002, the S&P 500 bottomed at 768.63 pts on October 10, 2002, returning -33.1% year-to-date.
Compare those performances with our times. On October 12, 2022, the S&P 500 reached the minimum at 3,573.86 pts, returning -25%. Looking at these numbers, one may wonder if there’s really something special about the month of October and if history will repeat again this time like that. If it will, it’s possible we have reached bottom already? Looking at the current macro context, I personally doubt it. It’s important to do these studies but we have to consider the differences in the macro context back then and today.
Look at what’s going on in the bond market. Bonds are being assassinated. The 10-year treasury note yield has reached 4.17% at the time of this writing. On yesterday’s post, we talked about the bond market volatility index, MOVE, rising to levels that were associated with big problems in the past. The interest rate differential between the 2-year and 10-year has been firmly in negative territory, an indicator for recessions, since July.
The Pulse is in the yellow zone. We are holding 1/4 in risk positions for Levels I, II, II+, and III. This means 1/4at risk and 3/4 in CASH.
