October has a sinister reputation in the stock market, and this year it is shaping up to be more dangerous than usual. The long-running Brexit saga appears to be headed for an end at the worst possible time — October. The same events that financial markets barely notice in March or April often produce sudden price movements this time of year. October is not always bearish, but it is usually volatile. The increasing stock market instability of the last two years is a warning sign. The bull market in stocks is showing its age. Now is the time to diversify your portfolio — or get ready for a wild ride.
Brexit has shaken financial markets for years, but the October 31 deadline promises to bring it all to a sudden end. It is increasingly clear that British Prime Minister Boris Johnson is serious about taking the UK out of the EU. Unfortunately, too many people in the establishment and on Wall Street bet everything that they could stop Brexit. If Johnson succeeds, we can expect a significant correction to global stock markets as firms struggle to deal with the new reality. If he fails, Jeremy Corbyn could become Prime Minister and nationalize much of the British economy. When Britain tried socialism during the 1970s, the economy nearly collapsed. Gold provided the only refuge for investors.
October is not always bad for the stock market, but it features the worst crashes. The crashes of 1929 and 1987 both took place in October. More recently, October was the single worst month for stocks during the 2008 Financial Crisis. The peaceful bull market of 2017 has already given way to rapid ups and downs in the stock market during 2018 and 2019. Just last year, the S&P 500 was down more than 10% at one point in October. While we can’t predict short-term price movements, this kind of high volatility tends to continue. Anything can happen in October. The stock market could surprise all of us with a big move up.
More likely, something will go wrong somewhere. Then, we’ll have another October crash. I don’t put much stock in market timing, but October is the most dangerous time of the year for stocks. That makes it one of the best times to invest in a more diversified portfolio for the long run. Gold, silver, and other precious metals follow a different economic cycle than stocks. You don’t need to feel scared on Halloween. October is only dangerous when you bet everything on the stock market.