OCTOBER FRIGHT? NOT IN 2017.

Wall Street unlikely to be haunted by a crash this month

October has a sinister reputation on Wall Street. Stock market crashes in 1929 and 1987 are mostly to blame. But doomsday predictions for equities this October are conspicuously absent.

Indeed, instead of spreading a message of doom and gloom, portfolio managers and investment strategists interviewed by USA TODAY are calling for continued gains for U.S. stocks and downplay the risk of a big fall in equity prices.

The optimistic market call has been correct — so far.

In the first four trading days of October, the U.S. stock market has been in rally mode. The Dow Jones industrial average has closed higher each day, notching its 43rd, 44th, 45th and 46th all-time highs of the year. The blue-chip average is up more than 15% in 2017 and is within 255 points of 23,000.

In another sign of strength, the Standard & Poor’s 500 stock index has posted record closes six consecutive sessions, its longest string since 1997, S&P Dow Jones Indices says.

The sizable gains have come despite fears of a U.S. military confrontation with North Korea, President Trump’s stalled economic agenda and a market that has become pricey relative to earnings.

The basis for the bullish trading action boils down to two things: First, the record-breaking market is being supported by improving business conditions around the globe, which bolsters the earnings power of publicly traded companies.

Second, there are few present signs of traditional bull market killers, such as wildly overvalued stock prices, overly optimistic investors, rapidly rising interest rates and contracting economic growth.

“Most of these ingredients that cause market meltdowns are missing,” says Peter Cardillo, chief market economist at First Standard Financial, a Wall Street financial services firm.

With fewer bad things in the pipeline to trip up the market and the economy and corporate profit growth coming in at or above investor expectations, Cardillo says he doesn’t expect an “October surprise.”

Barring market angst caused by an unpredictable geopoltiical event, the “market is likely to move higher,” he says, adding the market can suffer short-term blips, or pullbacks, at any time.

If Cardillo is right, investors who suffer from the Wall Street malady “October-phobia” — or the fear of a stock market crash such

as the Dow’s 22.6% drop on Black Monday in October 1987 — might find their heightened anxiety level is misplaced.

“Most of these ingredients that cause market meltdowns are missing.”

PETER CARDILLO, chief market economist at First Standard Financial

OCTOBER’S DARK PAST

The 1929 crash that caused the Great Depression happened in October. So did the 1987 crash. Stocks also suffered a short drop of nearly 10% in October 1997 in a selling panic sparked by a currency crisis in emerging markets. The last bull market also died in October 2007, setting off the worst stock market decline since the Great Depression. Stocks also cratered nearly 17% in October

2008 during the financial crisis. All the market dives in years ending in “7” — 1987, 1997 and

2007 — give investors pause, Paul Schatz, president and chief investment officer of Heritage Capital, a personal investment management firm in Woodbridge, Conn., said in a research report.

“Octobers in years ending in 7 have had unique behavioral patterns to the downside,” he wrote. The good news, he counters, is most of the biggest drops have come when markets were in decline heading into the month. Stocks, of course, have been on a tear all year long.

REASONS TO BE BULLISH

Bad memories of short-term stock losses overshadow the fact October’s overall performance over the years hasn’t been as horrific as the highly-publicized plunges suggest, data show.

October, for example, actually marks the end of what historically has been the worst six months for stocks and the start of the best three-month period, the year-end stretch from October through December.

October also has been the Dow’s second-best month in the past 20 years, posting gains of nearly 2% and finishing higher

70% of the time, according to Bespoke Investment Group. And since the end of the 2008 financial crisis, the broader Standard & Poor’s 500 stock index has gained nearly 3% in October from 2009 thru 2016, versus an average gain of 0.9% for the month dating to

1983, Bespoke data show.

ROCK-TOBER GAINS IN 2017?

Chris Retzler, manager of the Needham Small Cap Growth fund, says despite its “frightful reputation,” he does “not expect a negative October surprise.”

Stocks will benefit from improving global growth prospects and “potential clarity” on government policies, including President Trump’s recently proposed tax cut plan, Retzler says. Any pressure on stocks that results from fear of the Fed removing stimulus from the financial system will be offset, he says, by the pro-growth policies and deregulation from the Trump administration.

In the end, Wall Street doesn’t see the bottom falling out because the foundation of the rally is supported by economic growth, strong earnings and low borrowing costs.

“There’s just not a lot to fear in the outlook,” says Chris Rupkey, chief financial economist at MUFG Union Bank.