NEW YORK (CNN/Money) - If corporate misdeeds, a sputtering economy and jitters over Iraq weren't enough, now investors get to stare into the maw of the month that's brought us the biggest market declines in history. Yes, October's here again.
While Septembers win for the worst historical performance overall, October is the month of the 1929 crash, the 1987 swoon and the stark selloffs of 1997 and 1998. There also was a Friday the 13th in 1989 when the Dow dropped 7 percent (that would be worth more than 500 points at today's levels) and some spectacular swoons in 1978 and 1979.
"A lot of people are waiting for that climatic whoosh lower," said Kirlin Securities market strategist Tony Dwyer. And that alone could make it happen, Dwyer and other traders worry. "It's almost like a self-fulfilling prophecy," he said.
Not a welcome prospect after the market's recent performance. Stocks dropped sharply in the just-finished third quarter, with both the Dow Jones industrial average and the S&P 500 falling 18 percent, their biggest declines since the fourth quarter of 1987. The Nasdaq fell 20 percent.
|Oct. 19, 1987†||22.6%†|
|Oct. 28, 1929†||12.8%†|
|Oct. 29, 1929†||11.7%†|
|Nov. 6, 1929†||9.9%†|
|Dec. 18, 1899†||8.7%†|
|Aug. 12, 1932†||8.4%†|
|Mar. 14, 1907†||8.3%†|
|Oct. 26, 1987†||8%†|
|July 21, 1933†||7.8%†|
|Oct. 18, 1937†||7.8%†|
While theories abound on why some of the most devastating drops have occurred in October, there's nothing very concrete. Some say its because portfolio managers at the many mutual funds that close their books in October are squaring their numbers. Others say that with the waning sunlight, investors begin to hunker down for winter.
Maybe investors sell in October because they were trained to long ago: At the turn of the last century, Midwestern banks would draw money from their New York counterparts to pay for grain shipments during the harvest months. This led to a drop in liquidity on Wall Street that would sometimes spark crashes.
Whatever the reason, October has been a scary time on Wall Street.
October also brings bottoms
But historically October has also been the month that turns the tide, and traders are hoping that it will put at least a temporary floor under stocks this time around.
"I think we make a nice trading bottom in October," said Larry Rice, vice president at brokerage Janney Montgomery Scott.
But Rice despairs that we still haven't entered the sort of environment that breaks the bear's back. It's not enough for stocks to just come down to fair valuations; Rice wants to see them trading cheap. He also thinks the market needs to have some washout days, where investors simply give up on stocks, before long-term investing is a worthwhile pursuit again.
Rice could get what he wishes for, according to Scott & Stringfellow technical analyst Richard Dickson. With all the worries swirling around Wall Street, stocks could be set up for a sharp jog down.
"We could see an important bottom in October," said Dickson. "It could potentially be very significant for the long-term health of the market.
Again, that drop might be self-fulfilling: Worries over a big drop down in October could take a lot of potential buyers out of the market. Take the buyers away, and the pressure sellers exert on the market increases. Even though today's levels may end up being fine places to buy stocks, many would prefer to stick to the sidelines.
"This is typically when important market bottoms are built," said Bollinger Capital Management head John Bollinger. "But I'm sitting back and waiting to be shown."