From the Grips of Fear to….

Nov 6, 2023 | Blog


By: Greg Stewart, CIO

October is the month when many people spend time enjoying all things spooky, dark, and a little scary. It is a wonderful way to offset the shorter days that arrive with the turning of the season.

Coincidentally – or not? – October is also generally seen as the scariest, and most volatile month for stocks, with more swings in the S&P 500 of 1% or more than any other month (dating back to 1950). It’s also known for more than a few significant, and infamous market events, including:

The Bank Panic of 1907 that started in October and lasted six weeks. 

The Crash of 1929, which began on October 24 and kicked off the Great Depression.

Black Monday, October 19 1987, which resulted in the creation of market circuit breakers

Indeed, there is a perception that October is the darkest month of the year for the market. 

It may come as a surprise however, that October has also heralded the end of more bear markets than beginnings. Significant long-term rallies began in the Octobers of 1987, 1990, and 2002, with the aforementioned Black Monday turning out to be one of the great buying opportunities of the last fifty years.

So, that’s what history suggests, but what do we know about today?

People are worried right now, and there seems to be plenty to worry about. 

I’m not going to attempt to downplay all the concerns that we are currently facing. Anecdotally, we’ve noticed that many of the people we speak with are tightening up their spending, and feeling pretty negative about opportunities for portfolio growth right now. 

From a data perspective, this is measured as “sentiment”. How investors feel about the market, the economy, and life in general has an impact, because those feelings often create behaviors that are played out in investment decision making. 

Sentiment has a tendency to act like a pendulum on a grandfather clock. It swings all the way in one direction, and then swings in the other direction, never stopping in the middle. It tends to move from a period of confidence, which we had earlier this year, through to periods of negativity. It doesn’t stop along the way, reassess, and change direction. It sees its way all the way to the other side, the furthest extreme, before finding its way back.

Recent negative sentiment has a lot to do with the key issues we’ve been dealing with for more than a year, including:

  • Significant increases in interest rates 
  • Lingering inflation
  • Layoffs and strike action 
  • War in Europe and now the Middle East
  • Continued effects from the pandemic

Prospective homebuyers have seen mortgage payments double. Grocery and fuel bills seem to be growing faster than reported inflation rates would indicate. For many it feels like the day-to-day management of personal and business finances has become that much harder. 

From a personal perspective, this might mean choices like a reduction in discretionary spending, a longer wait to embark on a home renovation project or purchase of a new vehicle, or even a real shift in where to live. 

From a business perspective, this might mean wage freezes, hiring freezes, layoffs, and a reduction of investment in capital projects. It may mean choosing not to invest in a particular project that could produce increased revenues in the future, because the cost of borrowing is so much higher, and the math simply doesn’t make sense. 

Recent Investor Behavior

After a rough 2022, when both stocks and bonds took a significant tumble, we saw the markets start to climb a “wall of worry” in the first half of this year. Then, in August, and into September, we saw a stumble across most markets. 

How have people reacted? Looking at the flow into, and out of certain ETFs (exchange traded funds) is an interesting indicator of investor behavior. For the week ending October 11th, there was a negative outflow from funds of about $12 billion. In the two weeks prior to that, the negative outflow was even larger at over $14 billion. The overwhelming majority of those outflows were in equity (stock) funds. A clear indication of fear and pessimism.

I get it. Equity markets can be volatile, and that can feel very uncomfortable.

Looking Ahead

The state of worry many are experiencing is reasonable, and fact-based.

It’s also the type of sentiment that sets the stage for great investment opportunities, much like 1987’s Black Monday.

It’s important to understand that the times when there is a lot of fear, are often the best times to be strategic.

The current investment landscape, as far as finding opportunities, is much better than it was in July. Sentiment that is strongly leaning towards extreme bearishness often sets us up well for future returns that are well above average. 

Previous points in history when sentiment indications were similar, such as the pullbacks in 2000, 2002, 2008, 2009 and 2022, produced significant annualized returns going forward. 

I believe the returns that are available for those who are strategic and forward looking are potentially incredibly attractive. 


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