September lived up to its reputation as the toughest stretch of the year for stock investors.
The forecast for the market is cloudy at best—and there are no meatballs involved. Questions about the strength of the economy, what the Federal Reserve plans to do next, and even the path of corporate earnings won’t be answered for months, leaving certainty-starved investors feeling like they’re walking on quicksand. It’s a good time to buy stocks anyway.
The reasons for optimism start with a just-completed September, which lived up to its reputation as the toughest stretch of the year for stock investors. The
S&P 500 index
—which dipped 0.74% this past week—closed the month down 4.87%, its worst month since December, while the
Dow Jones Industrial Average
slid 1.34% to finish the month off 3.50%. The
dropped 5.81% in September after rising 0.06% this past week.
There was a lot to dislike about the past month. Over those 30 days, stock investors have had to contend with a “hawkish pause” by the Fed, a looming federal government shutdown, a jump in bond yields, and rising oil prices. No wonder just 27.8% of respondents in the American Association of Individual Investors sentiment survey described themselves as bullish—the lowest level in four months.
Yet even as the days darken in October, the market’s disposition should become sunnier. The most straightforward argument for a near-term bounce in the stock market is simple mean reversion. “One-month periods where stocks do nothing but go down…