Market Outlook

Halloween Indicator Optimism with Inflation Brewing

While October is one of the most feared months in the financial calendar, the October Effect did not come to haunt us. Many of the Wall Street’s legendary crashes happened this month including the panic of 1907, the crash of 1929, and ‘Black Monday’1987. The 2008 financial meltdown and real estate crash almost qualified, arriving September 29th, 2008. (image Benjamin Buttons Ulin)

Like most market maxims, the October effect is considered to be more of a psychological expectation than an actual phenomenon, as most statistics go against theory. While it would be novel for crashes to constrain themselves to one particular month with advance notice, October is no more prone to volatility than the other 11 months of the year.

Regardless of reputation, October has held up particularly well over time for stocks. As noted by LPL Research, November has also been solid historically. Since 1950, and the past 10 years, it has been the best month of the year and perhaps should be coined as “the month of the Bull” more so than turkeys.

Halloween Indicator

Beginning this week, there may be more treats than tricks ahead for investors. The Halloween Indicator, popularized by the adage, “Sell in May and go away,” is the tendency for the market to perform better from Nov. 1st to April 30th than it does over the other six months. Some who subscribe to this myth say not to invest at all during the summer months.

While we do not promote seasonal market timing or invest based on superstitions, this stock market anomaly dating back to at least the 1930s does have some merit. The returns in months from November to April total 5.2% In contrast, the returns from the six months after May are a mere 2.4%.

Jon here. Market timing is a fool’s game, as you never know what you may get. We actually look forward to spooky stock market corrections as “buying opportunities” no matter the season, whether our clients are starting out with cash, periodically rebalancing portfolios, or dollar-cost-averaging into the market throughout the year.

This goes along with the Buffet Maxim to “always be fearful when others are greedy and be greedy when others are fearful.” In other words, you have the potential to make more money if you buy while others are fearful and selling. It’s like buying winter clothes in the summer. To boot, Baron Rothschild memorably stated to “buy when there is blood in the streets,” which emphasis that contrarians find opportunities in the worst market conditions.

 Inflation Brewing Is Unusual for Investors

Inflation continues to be a hot topic for investors as markets adapt to worsening supply chain disruptions. However, not all inflation is the same and today’s environment requires an understanding of what’s driving prices higher. More importantly, this can affect portfolios and financial plans in different ways.

All investors understand that the prices of individual goods and services can be affected by supply and demand. Common sense tells us that when supply falls and/or demand rises in a competitive market, prices will tend to rise. This is true whether we’re talking about used cars, lumber, houses, computers, sneakers or concert tickets.  

In cases where supply is artificially disrupted, there can be a “deadweight loss” to society since there are willing buyers who miss out – not just because prices are temporarily high, but because there may simply not be enough goods available. Recent examples are toilet paper and hand sanitizer at the start of the pandemic when a surge in demand caused widespread shortages. While challenging, few economists would describe the situations above as “inflationary.”

This is what makes today’s situation unique. Prices are rising across the board not necessarily because of the Fed, but because bottlenecks in today’s global world affect nearly all industries. Thus, when investors talk about “inflation” today, what they really mean is “supply chain disruptions.” Similarly, when investors debate whether higher inflation is “transitory” or not, they are really debating whether they are due to short- and medium-term supply problems or longer-term factors such as Fed policy.

How this is resolved requires a combination of macro forces related to global energy and port capacity, and micro forces on an industry-by-industry basis. Still, the longer this goes on, the more it will affect inflation expectations among businesses, consumers and financial markets.  

For savers, inflation slowly erodes the value of hard-earned cash. (see below) If your daily purchases cost more, it doesn’t really matter if it’s due to factory shutdowns in Asia or the size of the Fed’s balance sheet – the effect on a household’s bottom line is the same. Just based on a 5% inflation rate, according to the “Rule of 72,” the cost of goods could go up by 50% in just over 7 years.  At the same time, the purchasing power of $500K in cash would get “cut in half” down to $250K, due to the deteriorative effects of inflation. 

For investors, different causes of inflation can have a big impact on portfolio strategy. Slow and steady inflation lends itself to assets that match this time horizon, possibly including TIPS, real assets and more. Sudden spikes in prices due to supply constraints may lend themselves more to sector and industry tilts such as financials, energy, oil, commodities, industrials and materials.

Ultimately, it’s important for investors to maintain perspective on today’s price increases. Inflation is a reason to stay invested to offset the negative impact to purchasing power. Below are three insights that can help investors navigate today’s inflation rates.

1 The market is adapting to higher near-term inflation

The market has been adapting to stubborn levels of inflation. Even if inflation is “transitory,” the longer they last, the less investors can ignore their effects. TIPS prices now reflect higher inflation rates over the medium-term before falling in the long run.

2 Consumers expect higher prices too

Consumers are feeling the pinch of supply disruptions as price increases affect a variety of daily goods and services. This survey of expectations suggests that consumers believe prices will remain high before coming back down in the medium-term.

3 Inflation quietly erodes the value of cash

Over time, inflation quietly erodes the value of cash.  

 The bottom line? Beginning this week, there may be more treats than tricks ahead for investors with the potential for seasonal gains over the next six months based on the Halloween Indicator. Investors should stay diversified in order to offset the effects of inflation and other ghoulish economic headwinds in their portfolios.

For more information on our firm or to get in touch with Jon Ulin, CFP®, please call us at (561) 210-7887 or email

You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), and it advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.

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