Five of the S&P 500's 10 biggest one-day declines since 1981 came in October. Yet the index has averaged a gain for the month since 1928. Investors can weigh that history against current risks without trying to time a crash.
Five of the S&P 500's 10 largest single-day declines since 1981 came in October. Yet the index has averaged roughly 0.54% to 0.6% gains for the month since 1928, according to a historical October-market analysis. The record points to risk management, not a seasonal retreat from stocks.
The VIX reached an intraday high of 89.53 on Oct. 24, 2008, during the financial crisis.
October's mixed record
The month's reputation has a basis. On Oct. 19, 1987, the Dow Jones Industrial Average fell nearly 22%. In October 1929, the Dow dropped almost 13% on Oct. 28 and nearly 12% the next day. October 2008 brought drops of 9% on the 15th and 7.6% on the 9th. On Oct. 27, 1997, the index fell 6.8%. The Panic of 1907 also unfolded in October.
The VIX tracks expected near-term volatility implied by S&P 500 options. It reached its crisis-era peak in 2008. The Federal Reserve's VIX series describes the measure.
In long-run data, October closed higher in about 59% of observations; September, rather than October, has historically been weaker. That seasonal tendency describes frequency, not a forecast for any particular year.
The long-run average and the dramatic daily losses measure different things. One is a monthly return across many years; the other records individual sessions. Neither says whether the next October will rise or fall.
Defense without a market exit
The backdrop gives investors reasons to review their risk. The S&P 500 is at its most concentrated level since 1965. The Shiller CAPE valuation measure recently reached its highest point since the dot-com bubble. Late-September market reports put the 10 largest stocks at roughly 38% to 41% of the index and the CAPE above 40.
Inflation remains elevated. Bond rates are rising, and the midterm elections add uncertainty. A portfolio built around a narrow group of expensive stocks may be exposed. These conditions deserve attention, but they do not show when or whether a downturn will arrive. Valuation measures can flag risk without giving investors a reliable exit date, as an earlier analysis explains.
One defensive approach is to favor companies whose demand may hold up across economic conditions and whose cash flows can support investment and shareholder payouts. Waste Management (NYSE: WM) is one example. Homes and businesses need its trash and recycling collection services in both expansions and contractions. The company also invests in acquisitions, recycling and landfill renewable natural gas production. It returns cash through dividends and share repurchases.
WM has raised its dividend for 23 consecutive years. Its dividend's compound annual growth rate over the past decade was 8.7%. Since 2015, the company has repurchased 12.4% of its outstanding shares. The stock was more than 15% below its 52-week high in the source material. Its beta was 0.56, which means it has typically been less volatile than the S&P 500.
That is not a guarantee. Neither the pullback nor the beta shows that the shares are cheap or protected from losses. They offer context, nothing more.
Income is not immunity
Realty Income (NYSE: O) offers another source of recurring cash flow. The REIT owns retail, industrial, gaming and data center properties. It leases them under long-term net agreements to major companies. According to the source material, 91% of its retail rent comes from tenants in nondiscretionary, service-oriented businesses that have remained resilient across economic cycles.
That rental income supports a monthly dividend. Realty Income has raised the dividend 136 times since going public in 1994.
The company has outperformed the S&P 500 in 11 of the 13 market corrections of 10% or more since its 1994 public listing. Its beta is 0.5. Its dividend yield was nearly 6% in the source material. Those figures may appeal to income-focused investors, but past outperformance does not promise the same result in the next correction.
A dividend yield measures income against a share price. It does not forecast total return, and a high yield cannot prevent a share price from falling.
WM and Realty Income show what a defensive tilt can and cannot do. Cash-generative businesses and dividends may soften portfolio volatility, but individual stocks and REITs still carry company-specific and market risks. Beta looks backward. Dividends can change, and they do not guarantee a positive return.
October's history is a reason to stay alert, not to call a crash. For investors worried about concentration and valuations, a measured shift toward durable cash flows is more defensible than panic selling or treating one holding as a shield.
