In the commodities market, the symbol for the month of October is “V”.  This October, the “V” stands for volatility.

The Big Picture 

Investors have good reason to fear October markets.  October 2007 signaled the end of the 2002-2007 bull market.  The last market rout happened October 2008 when the S&P 500 lost 16.8%.  Black Monday occurred October 19, 1987 when the Dow Jones Industrial Average lost 22% of its value.  The Great Depression started with a two-day stock market meltdown on October 28-29, 1929.  No wonder investors are on tenterhooks.

After climbing steadily over the summer and reaching new highs on September 19th, the S&P 500 index (representing 70% of the total market capitalization of the U.S. stock market) hit an air pocket in October, falling 8% from the record high before recovering. 

However, even with today’s rebound, stocks remain lower for the fourth consecutive week.  Arguably one of the most unloved rallies in modern times, traders and investors had been calling for a correction, if not crash, for years.  This recent drop is definitely in the correction camp, but fundamentals belie a wholesale stock market crash. 

I, Investor 

The unemployment rate has fallen below 6% with the country now creating an average of 213,000 jobs per month, according to the Bureau of Labor Statistics.  The jobs created are expanding beyond the low-wage retail and healthcare sectors to include business and professional services, leisure and hospitality, mining and construction, among others. 

Housing starts rose 6.3% in September, thanks in part to historically low mortgage rates.  The 30-year mortgage rate fell to 3.97% this week, down from last week’s rate of 4.12% and now at the lowest rate since June of 2013.  A strong labor market will also lend support to housing, as buyers feel more confident about their employment situation to make a long term commitment.

 Vehicle sales remain strong as drivers replace aged vehicles.  According to AAA, the average age of used cars on the road is 11 years old.  Expect continued support from the auto sector.

Crude oil prices are at $80/bbl, the lowest level since June of 2012, giving consumers relief at the pump and a bit more in the wallet to spend elsewhere.  This drop comes in spite of turmoil in the Mideast and campaign against ISIL.

 The Russian annexation of Crimea and invasion of Ukraine caused brief sell-offs that were met with buying interest.  The slowdowns in Europe and Asia have foreign investors flocking to the U.S and quality investments.  The U.S. remains the global economic leader and capital flows reflect that.

 Even the Ebola crisis offers support for U.S. stocks in the form of investments in hazmat-suit and other protective gear makers.  It has also reignited interest in pharmaceutical research and development. 

And in the midst of all these crises, the third quarter earnings season is turning out to be Goldilocks – not too hot, not too cold – with average revenue growth estimated at 3.9% and earnings per share growth averaging a respectable 6.9%, according to Thompson Reuters calculations. 

And lastly, we’re entering that favorable period between November and April when the S&P 500 index advances on average 8.74%. 

My advice is to ignore the headlines, noise and fear-mongering.  Just stay the course.  Long term investing is just that, for the long term.  Invest like Warren Buffett; focus on the big picture and buy when everyone is selling.

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