The Stock Market Had an Awful September. Here’s What History Says Happens Next.

A great quarter ended with a miserable September—something that has only happened once before, at least to this extent. That complicates things heading into what has historically been a good month for the stock market.

September sure lived up to its reputation for inflicting pain on stock investors. Even with the Dow Jones Industrial Average up 329 points on Wednesday, the blue-chip benchmark finished the month down 2.3%, while the S&P 500 fell 3.9%, and the Nasdaq Composite dropped 4.9%. Those are the largest monthly declines since March.

Those losses, spurred by concerns about a slowdown in the economic recovery, the election, and sky-high tech valuations, couldn’t stop the market from having a fantastic quarter. The Dow advanced 7.6%, while the S&P 500 rose 8.5%. The Nasdaq Composite gained 11%.

October should be better than September. Though the month is famous for big wipeouts—1929 and 1987 come to mind—the folks at Bespoke Investment group note that October has actually been pretty good for the market. The Dow has finished the month up 70% of the time during the past 20 years, while gaining an average of 1.6%. “Looking ahead to October, seasonal trends go back to favoring bulls,” they write. Futures on the Dow Jones Industrial Average were up 219 points in premarket trading on Thursday.

But this may not be a normal October. The S&P 500 has gained more than 9% during the third quarter despite losing 3% in September on just one other occasion: 1932. The index fell 14% in October, according to the Dow Jones Market Data Group, and finished the fourth quarter down 15%. That, on the surface, would appear to be a bad omen.

Still, comparisons to the 1930s abounded during the first months of the coronavirus crisis, and few of them played out the way they back then. Investors can thank the Federal Reserve, which acted quickly to fend off financial contagion and keep the credit markets open, and the U.S. government, which quickly passed bills that offered trillions of dollars in relief to businesses and individual Americans. Even now, its still possible that another relief bill could be passed.