Before I begin October’s important Monthly Market Update, “How to Respond to Market Turbulence,” let me remind you that turbulence is entirely normal and a part of the investing process. It’s important to understand that history has shown us repeatedly that, over time, the markets typically move higher. And that when there’s a correction, or turbulence, losses are only realized if you abandon your plan and sell your positions.
As a reminder, we are your partner in financial planning and fiduciary investment management in the Gold River, Carmichael, Fair Oaks, Folsom and Roseville areas, and we welcome the opportunity to answer any questions or address any concerns you have about the markets or planning that helps secure your family’s financial future.
That said, October reminds me of one of my favorite stories. After a tough loss to the Philadelphia Eagles in the 1960 NFL Championship Game, the following year, at the start of training camp, legendary coach Vince Lombardi greeted his Green Bay Packers with a football in hand, and famously said, “Gentlemen, this is a football.” The message was simple: When things get complicated, get back to the basics.
That season, by focusing on the fundamentals, the Packers won the NFL Championship 37-0.
This story is a powerful reminder that in times of uncertainty or doubt, the key to staying grounded lies in focusing on the fundamentals.
But what is it about October that makes it feel like such a time of uncertainty—especially for investors?
The Origins of the October Effect
Known as the “October Effect,” a superstition rooted in fears of market volatility, October carries a bit of a spooky reputation among investors. And not without reason. The fact is, that some of the most notorious crashes, such as the Stock Market Crash of 1929, Black Monday in 1987, and the financial crisis of 2008, all came to pass in October.
But with its roots in a bygone agrarian era, a time when well over half of all Americans lived and worked on farms, October’s fickle reputation carries more weight than mere superstition. In fact, historically, October’s volatility can be traced back to seasonal liquidity cycles. Even into the 19th and early 20th centuries, U.S. farmers needed to raise cash in the fall to harvest crops and prepare for the next planting season. That meant pulling money out of banks and, later, markets, which drained liquidity from the entire financial system.
With less capital available, markets became more fragile, which led to exaggerated price swings that gave October its turbulent reputation.
While agricultural cycles no longer dictate market movements as they once did, their influence lingers. Investors often recall October’s negative headlines more vividly than the positive ones, even though the month frequently delivers favorable stock performance. This cognitive bias taps into several behavioral tendencies that can cloud financial judgment and lead to costly mistakes.
Psychological Traps Leading to Emotional Decisions:
When emotions take the wheel, investors are prone to:
- Loss Aversion – The pain of losing feels more intense than the joy of gaining, prompting hasty actions to avoid losses.
- Herd Instinct – In the face of market turbulence, it’s tempting to follow the crowd, even at the expense of a well-thought-out strategy.
- Recency Bias – Recent events dominate our thinking, making it difficult to see the bigger picture or trust in long-term trends.
- Overconfidence Bias – Believing we can outsmart the market or predict the next move often leads to unnecessary risks and missteps.
These biases can easily steer us off track, just as a football team might abandon its strategy after a difficult first quarter. But by staying disciplined and committed to proven fundamentals, we improve our odds of success and position ourselves for long-term wins.
Equities: Staying in the Game
And because we stayed the course—October 2024 was another positive reminder of why fundamentals and a commitment to staying invested matter. Fueled by optimism about AI, ample liquidity, and fiscal strength, U.S. stock markets reached new all-time highs. With Q3 earnings reports rolling in, investors had a chance to test whether companies’ performance aligned with expectations.
Throughout the month, growth stocks outpaced value stocks, and larger companies led the charge. Energy stocks had a strong start, but technology and consumer sectors took the lead as the month progressed. Meanwhile, materials, healthcare, and industrials weakened, reminding us that market performance is rarely uniform.
Internationally, both developed and emerging markets faced challenges, reflecting dampened growth expectations and heightened economic uncertainty—underscoring the importance of diversifying across sectors, regions, and asset classes.
Bonds: Reading the Signs
Bond yields climbed slightly in October, reflecting cautious optimism about the economy’s strength. A strong jobs report and steady inflation data supported these gains, with the 10-year Treasury ending at 4.25% and the 2-year at 4.11%. While higher yields raise borrowing costs for companies, they also indicate confidence in long-term economic growth. Short-term high-yield bonds outperformed other segments, providing some stability amid changing market dynamics.1
Despite normal volatility in stocks, bond yield spreads remained steady, with corporate bonds closing at 5.10% and high-yield (junk) bonds at 7.47%. One-year CD rates finished the month at 4.25%, about 1.4% lower than the peak rates enjoyed in 2023. As we continue to see declines in risk-free rates like CDs and money markets, investors may need to shift funds into higher-risk assets to achieve sustainable long-term growth.1
Macroeconomic Data: A Mixed Bag
Economic indicators in October painted a nuanced picture:
- Jobs & Inflation – Employment remained strong, though inflation ticked up slightly in transportation and healthcare.
- Retail & Consumer Sentiment – Retail sales exceeded expectations, boosting Q3 GDP forecasts, though consumer sentiment dipped slightly, reflecting lingering concerns.
- Housing – New home sales surged to their highest level since early 2023, but existing home sales hit a decade low due to high mortgage rates.
- Manufacturing & Services – Manufacturing posted its third month of contraction, while the services sector held steady, reflecting the ongoing shift toward service-based economic activity.
This mix of optimism and concern underlines why we use highly diversified portfolios—grounded in the fundamentals—to meet the needs of our clients and withstand market ups and downs.
Just like Vince Lombardi’s Packers found success by going back to the basics, October reminds us of the power of fundamentals. Whether it is evaluating quarterly earnings, or riding out market volatility, we do not abandon our carefully crafted game plan when things get tough.
Up, down, and sideways, it is important to remember that the markets will always move. But when we stick to what we know works, we can navigate the uncertainty with greater confidence.
If you enjoy deep diving into in-depth economic and market insights, don’t miss the Quarterly Macro & Market Outlook from the expert investment management team at our partner company, NewEdge Wealth.
As for October 2024, like so many Octobers before it, the markets gave us plenty to navigate. But here’s the takeaway: Success isn’t about avoiding challenges; it’s about showing up, staying grounded, and trusting the process.
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1 Morningstar US Fixed-Income Monitor: October–December 2024 | Morningstar Indexes
