Dow Closes Best Month In 46 Years As Investors Shake Off Fed’s Ghouls

Topline

The stock market dipped Monday as investors spent Halloween spooked by the Federal Reserve’s interest rate hike plans, though major indexes closed out a banner month after suffering one of the worst Septembers in recent history.

Key Facts

The Dow Jones Industrial Average fell 0.4%, or 130 points, while the S&P 500 dipped 0.7% and the tech-heavy Nasdaq dropped 1%.

Despite Monday’s drop, the Dow still posted its best October in the index’s 126-year history, up 14%—and its largest monthly gain since 1976.

The S&P and Nasdaq had more pedestrian months, with 8% and 4% respective gains, and all indexes remain in the red by double digits year-to-date.

This Halloween is a particularly scary one for the market and the economy, as the U.S. flirts with a recession and inflation sticks at its highest level in four decades, but traders are not always fearful on the holiday.

On the 17 Halloweens when the market was open since 2000, the Dow has risen eight times and fallen nine times.

The Dow has gained 0.1% on average in that span, placing stocks’ trick-or-treat odds at nearly exactly 50/50.

What To Watch For

Monday may be Halloween, but investors’ greatest fright this week will likely come Wednesday when the Fed shares the results of its latest policy meeting. Another 75-point increase to the federal funds rate is all but certain, but what the central bank shares about its plans for rate hikes into 2023 will be the market’s primary focus given the strong inverse relationship between the funds rate and stock performance.

Crucial Quote

Jason Draho, UBS Global Wealth Management head of asset allocation for the Americas, wrote in a Monday note to clients the latest round of quarterly earnings “were better than feared,” but said the recent bear market rally “doesn’t look sustainable” given the bond market’s weakness, intimating the market’s October surge was more trick than treat.

Tangent

There’s a popular investment strategy to buy stocks October 31 and sell May 1 based on a theory that the market typically performs better from November through April than May through October.

Further Reading

Dow On Pace For Best October Ever, Second-Best Month In 30 Years (Forbes)

Why The Halloween Indicator May Work For Investors In 2022 (Forbes)