5 'October Curses' to Watch For in the U.S. Economy

Oct. 4, 2011 — -- What's scarier than a Freddy Krueger mask this month? Superstitious stock investors may say they are on alert for the "October Curse." October has seen some of the largest slides on Wall Street, including the "Great Crash of 1929" and "Black Monday" in 1987.

This September already capped the worst quarter for stocks since 2008, which is not entirely surprising considering that month has also seen historical dark days in the financial world, including September 2008, when Lehman Brothers collapsed.

How real is it? Guy LeBas, chief fixed income strategist with Janney Capital Markets, said the "October curse" may be a self-fulfilling prophecy.

"It may be one of those things that because market participants have a superstition about it, it tends to come true. We in the bond markets like to think we're not prone to silly stock market superstitions," he said. "That said, it's not exactly a happy time for the markets, given all the risk overhang."

Cursed or not, here are some topics in the financial world to watch this month:

1. Stock markets

Phil Orlando, chief equity strategist with Federated Investors, said September is historically worse for the stock market than October. On Friday, the Dow Jones Industrial Average, S&P 500 and Nasdaq each lost more than 12 percent for the quarter, the first time that has happened since the financial crisis at the end of 2008.

But on Monday, the S&P 500 already saw the lowest close since Sept. 2010, down 2.9 percent to 1,099.

"If September and October have the biggest cracks, that's when typically the smartest investors buy - when everyone else is scared to death," he said.

Orlando shared the alleged famous words of Baron Rothschild, a British nobleman and banker from the 18th century, echoed by 21st century investor Warren Buffett: "The time to buy is when there's blood in the streets."

Conversely, some investors believe the "best months" to buy are in November, December and January, Orlando said.

"The best time to buy is when everyone else is pessimistic," Orlando said. Also of interest will be this Friday's monthly unemployment report, which last month showed no new jobs were added in August, leaving the unemployment rate at 9.1 percent.

2. Auto sales and models

Car companies begin to roll-out their models for the following year in October. The prices of the new models will likely not be discounted this year, according to Orlando.

"Given the weakness in the economy you don't have a lot of folks buying cars on a whim. You're a lot more cautious making a sizeable investment like that and financing is an issue," he said.

Auto sales were approximately 13 million at an annual pace, as announced on Monday, which is good news for the economy, according to LeBas.

The figure was better than LeBas had forecasted, and the fastest pace of sales since April.

"It looks like the new model year was enough to get a few people down to the car lots, despite fewer dealer and financing incentives than in prior years," he said.

LeBas said auto sales "are the single most consistent aspect of consumer spending and, for most people, the largest ticket item they'll buy in an average five year period."

He said maintaining auto sales at above a 12.5 million rate is crucial in consumer support of the US economy.

3. Back-to-school sales

Orlando said the strength of the holiday retail season hinges in part on back-to-school sales. Those September sales are reported in October.

"September is back to school season and 80 to 90 percent of that is correlated to the holiday season. If back to school is good or bad, Christmas will tend to be the same, 80 to 90 percent of the time," he said.

While August sales were tepid, Orlando said he was willing to "write that off" because of events such as the "chilling effect" of the "debt ceiling fiasco," the S&P downgrade of U.S. debt, and Hurricane Irene on the East Coast.

"We need to see good retail sales numbers in hope that Christmas season will be good. At this point, we don't know," he said.

4. Corporate America earnings and layoff rumors

Just as quickly as summer came and went, so has the calendar year's third quarter. October ushers in third-quarter corporate earnings reports, which may show more chill than sunshine. Even the biggest players in the financial market are expected to show some troubling earnings, if not negative outlooks.

On Oct. 18, at least two companies will report earnings. Bank of America, which announced 30,000 layoffs on Sept. 12, may reveal whether the company has felt any backlash after announcing a $5 monthly debit card fee for purchases starting next year. Goldman Sachs, could allegedly have one of its worst quarters since it went public 12 years ago, and could announce layoffs, said the New York Times.

5. Healthcare

October is open enrollment month for many major employer health care plans. Consumers need to brace themselves for higher premiums. Last week, the Kaiser Family Foundation reported that the typical annual premium for family coverage rose 9 percent this year. This will mean higher co-pays and premium increases for millions of employees. The total annual premium for employers and workers rose to $15,073 for family coverage and $5,429 for singles, Kaiser said.

The first Monday of October is also when the U.S. Supreme Court gathers for the start of the 2011 to 2012 year. And while President Obama's Patient Protection and Affordable Care Act isn't on the docket yet, some political and legal analysts say the justices are likely to tackle the healthcare debate this year.

Orlando said regardless of whether the Supreme Court takes on the law, which was signed in March 2010, he says healthcare is likely to continue its trajectory of increasing premiums.

"Healthcare is like college education," Orlando said. "It goes only one way, and that's up."

Orlando said tort reform, lowering malpractice fees, more doctor training, or allowing health insurance sales across markets could begin to lower costs.

"Basic supply and demand could bring prices down, but the government hasn't implemented any of those things since they signed into law 1.5 years ago," he said.