It's officially spooky season, but that doesn't mean investors need to be afraid.
September is historically the worst month for the stock market, and this year proved no different. The Dow Jones Industrial Average fell 3.5% in September, its worst monthly performance since February. The S&P 500 dropped 4.9% and the Nasdaq Composite declined 5.8%, both indexes' worst month since December.
There were plenty of reasons for stocks to fall. Inflation remained a top concern for investors and consumers, with oil prices rising and getting close to $100 a barrel.
That plays into an equally important point. While investors had hoped that gains in the fight against rising prices might allow the Federal Reserve to stop raising interest rates, or even cut them next year, Chairman Jerome Powell made it clear that the central bank was going to keep them higher for longer.
"Everything is based on interest rates. When you value stocks and you value streams of earnings, the number one parameter that changes the value is interest rates," Eric Diton, president and managing director of The Wealth Alliance, said in an interview with Barron's. "So interest rates matter a lot."
Investors have also been concerned with the government shutdown, which Diton said causes an automatic slowdown to the economy as people stop getting paid and services halt.
Some investors think of October as a tough stretch -- no surprise given that 1987's Black Monday, the 1929 crash and the bank panic of 1907 all happened during the month -- but it historically it has been better than September. Since the indexes' inceptions, the Dow Jones Industrial Average has increased an average of 0.5% in October, while the S&P 500 and the Nasdaq Composite have respective average gains of 0.6% and 0.8%.
"I see a lot of signs of excessive negativity," Diton said. "One thing October has done a whole bunch of times is make a historic bottom in the month. A lot of major bottoms have occurred in that month. And I actually think the fourth quarter is going to be positive, and I think that October is going to be positive."
Diton isn't alone in this belief. Cory Mitchell, an analyst from investing information website Trading.biz, wrote that "while there are no guarantees the seasonal averages will play out this year, historically late September is a good time to 'buy the dip' in quality stocks to benefit from the October and November rally (December is also a decent month historically)."
Diton added that the market's overall 2023 gains have been led by a handful of tech companies, leaving the potential for other stocks to go higher as the year comes to an end. "The market is just slightly positive in my view, so I'm not spooked or worried about the market giving up big gains," he said.