Stocks end dismal month as strong day caps off big week

— -- It would be an understatement to say that October lived up to its billing as a scary, scary time for investors. The key question, though, is whether it will live up to its reputation as a "bear market killer."

Not unlike famous October crashes that occurred in 1987 and 1929, the Dow Jones industrial average plunged by as much as 24.7% at one point this month from its September close. On Friday, the Dow climbed 144.32 points to 9,325.01, putting it down 14.1% in October for its worst monthly performance in more than 10 years.

"What else can you say but good riddance," noted Sam Stovall, the chief investment strategist at Standard & Poor's in a report titled Goodbye Shock-tober.

The market's stats during the month of October were unnerving:

• Paper losses in U.S. stocks came to $2.5 trillion for the month, according to the Dow Jones Wilshire 5000 Composite Index, which represents nearly all stocks traded in America.

• During the week of Oct. 10, the Dow plunged 1,874.19 points, or 18.2% to finish at 8,451.19, its lowest close since April 2003. The week's decline accounted for half of the blue chips' losses for the entire year.

• The Dow fell for eight straight sessions — the longest losing streak since the eight days of declines following the Sept. 11, 2001, terror attacks, when the blue chips lost 1,038.12, or 10.8%. It lost a staggering 2,400 points, or 22.1%.

• The market's volatility was so intense that there were just three days during the month that the Dow didn't rise or fall in triple digits. The Dow set records for one-day point gains, 936.42 and 889.35, and for one-day point losses, 777.68 and 733.08.

But the way stocks finished the month may be a sign of better days to come.

Indeed, investors are hoping that the Dow, which on Friday posted its first back-to-back gains since late September, could signal that this October might also mark the end of another brutal bear market.

The Dow is currently 14.1% above its Oct. 27 closing low of 8175.77. And, more important, nearly 1,443 points, or 18.3%, above its Oct. 10 intra-day panic low of 7882.51.

The Dow was up 11.3% for the week just ended, its best weekly performance in 34 years, while the S&P 500 index rose 10.5%.

October has a rich history of marking turning points in the stock market.

In fact, the Dow's last two grizzly bear markets — 2002 and 1987 — all died in the month of October, and served as launching pads for new bull markets, according to statistics compiled by InvesTech Research.

Those types of market reversals have been instrumental in giving October the "bear market killer" tag.

Stocks, of course, have been bludgeoned most of 2008 by the economic fallout caused by the meltdown of the mortgage market and resulting credit crisis.

A recession seems all but certain after the government reported a 0.3% drop in economic growth in the July-September period. And with predictions of negative growth again in the final three months of the year, the often-used definition of a recession — two consecutive quarters of negative growth — seems close at hand.

But investors looking for silver linings don't have to look too far.

Analysis of stock performance during recessions show that stocks tend to turn up midway through the recession. Stock investors, of course, tend to look out six to nine months when pricing stocks.

Another positive is that stocks are heading into their best six-month period of performance. Since 1970, for example, the S&P 500 has risen 6.2%, on average, in the November through April period, compared to an average gain of just 0.6% from May through October, according to Standard & Poor's.

Stocks are also getting less expensive, trading below valuations seen at the bottom of the 1987 crash and closing in on even lower valuations hit at the bottom of the 1973-74 bear market.

What's more, investor pessimism is reaching extremes, which in the past has signaled market turns.

Still, the market still has to overcome fear if it is to sustain its rebound.

"Fear is the primary problem facing the economy," notes Jim Paulsen, chief investment strategist at Wells Capital Management. "Ever though we have fundamental problems, fear is our biggest challenge."

Dating back to 1900, the Dow has risen 0.95%, on average, in the month of November, posting gains 61% of the time, above the average 57%, says Bespoke Investment Group. However, when blue chip stocks fall in October, the average gain in November dips to 0.63%