October has seen more than its fair share of stock market crashes.
Black Monday, in 1987, is the most notable but the fallout from the global financial crisis in 2008 also occurred during the month. The Wall Street Crash of 1929 saw the Dow Jones fall nearly 11% on 24 October, a week before Halloween.
No wonder I’m scared that history might repeat itself in 2023.
Different circumstances
But conditions in the UK are currently very different to those that existed prior to the events described above.
There hasn’t been an extended bull run — the FTSE 100‘s only risen by 2% over the past six months. Despite three failures earlier this year on the other side of the Atlantic, the banking system appears robust. And there’s no danger of the economy over-heating.
Of course I can’t be certain that the UK stock market won’t crash this month, but it seems unlikely.
Indeed, history tells me that October has been quite a good month for domestic stocks. Since the inception of the FTSE 100 in 1984, it’s been the fifth best month, with an average gain of 0.44%. Incidentally, September is the worst, with an average monthly fall of 1.06%.
Shopping spree
So instead of looking to sell, I think now’s a good time to pick up a few bargains.
Some of the stocks of the UK’s largest companies have struggled of late. Investors appear concerned that domestically focussed banks, like Lloyds and NatWest, will suffer from increased bad loans, even though higher interest rates should boost their revenues.
The shares of these two financial institutions are 15% and 22% below their 52-week highs achieved as recently as February 2023.
They both have price-to-earnings ratios of around six and currently offer yields in excess of 5%. Although the fight against inflation hasn’t yet been won, I think their shares will recover as the UK economy starts to improve.
Building blocks
I also think the FTSE 100’s builders offer good value at the moment. Interest rates appear to be at, or close to, their peak. The market for new houses is probably as depressed as it can get. If economic growth returns then the housing market should recover.
During the third quarter of 2023, wages grew faster than ever before. Mortgage lenders have also started to cut their rates as competition intensifies. These two factors will make borrowing more affordable, which can only benefit the likes of Barratt Developments and Taylor Wimpey.
Their shares are presently offering yields of 7% and trade at six times’ earnings. These measures are attractive by historical standards.
Digging deep
Assuming the Chinese economy grows in line with forecasts, the stocks of UK-listed mining companies should benefit. China consumes around half the world’s natural resources and metals, and therefore has a major impact on the earnings of miners.
Glencore and Rio Tinto are yielding nearly 8% at the moment.
Of course, dividends are never guaranteed. And the earnings of all six of these companies are cyclical. But they have strong balance sheets, solid reputations, and there will always be a need for their products and services.
Instead of fearing October, I think it could be a good time to bag a few bargains. If only I had some spare cash to take advantage.
