What Happens After Two Big Down Months In A Row?

With October shaping up to be as bad (and probably worse) than September, let’s look at what happens after two really bad months in a row. Here I define it by two months that each had worse than -9% performance.

Since 1900 in stocks, that has happened 7 times. The resulting three months of performance follows each group. Median return around 7%, average (because of the 91% observation) of 14%.

I don’t put much faith in this with only 7 observations, but it could set the stage for a nice holiday rally. Investors looking to speculate could put on half a position in November, and half in December with exits at the end of December and January.

10/1929 -19.71%
11/1929 -13.06%
—-
12/1929 2.90%
1/1930 6.65%
2/1930 2.50%
(+12.48%)

4/1931 -9.20%
5/1931 -13.27%
—-
6/1931 14.46%
7/1931 -7.06%
8/1931 1.47%
(+7.95%)

11/1931 -9.30%
12/1931 -13.90%
—-
1/1932 -2.31%
2/1932 5.95%
3/1932 -11.32%
(-8.22%)

3/1932 -11.32%
4/1932 -19.75%
5/1932 -22.75%
—-
6/1932 -0.05%
7/1932 38.51%
8/1932 38.28%
(+6.94%, 91.42%)

9/1937 -13.81%
10/1937 -9.67%
11/1937 -9.64%
—-
12/1937 -4.5%
1/1938 2.05%
2/1938 6.73%
(-12.00%, 4.01%)