How does the ASX 200 perform in October?
October has a reputation for ending bear markets. History backs it, but bond yields and a hawkish RBA will decide how this one plays out.
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Source: Shutterstock
KEY POINTS
- The ASX 200 has finished October higher 61% of the time since 1980, and excluding the 1987 crash its average return lifts from -0.17% to 0.77%.
- The RBA lifted the cash rate to 4.60% on Tuesday, its fourth hike this year, while August trimmed mean inflation held at 3.6%.
- Wednesday's 0.92% relief rally was wiped out a day later as bond yields kept rising, keeping the focus on whether yields have peaked.
September lived up to its reputation as one of the weakest months on the calendar, with the S&P/ASX 200 falling 3.1%. That makes it the second-worst month of the year, behind March's 7.7% tumble, which was largely driven by the onset of the US-Iran war.
October is when the bulls tend to wake up, often called the 'bear market killer'. Historically, this month has frequently marked the final bottom of bear markets and the start of strong end-of-year rallies, with the much-anticipated Christmas rally not far behind.
Since 1980, the ASX 200 has averaged a 0.17% decline in October and finished higher 61% of the time. Now you might be thinking, all this optimism about October, but it finishes lower on average?
Interestingly, the average is weighed by the ASX 200 falling 42% (not a typo) in October 1987. This month featured the catastrophic "Black Tuesday", where the index fell around 25% in a single session. If we remove that year from the data set, the average instantly jumps to 0.77%, making it the fourth best month of the year.
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Source: Market Index
Our S&P/ASX 200 Total Returns data only goes back to 2001. On that basis, October has averaged a 1.13% gain and higher 64% of the time.
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Source: Market Index
The most recent Octobers have been a little soft, with sharp declines in 2018 and 2023 both driven by surging bond yields and inflationary headwinds.
Year | October (XJO) | October (XNT) |
|---|---|---|
2015 | 4.34% | 4.37% |
2016 | -2.17% | -2.15% |
2017 | 4.00% | 4.01% |
2018 | -6.08% | -6.05% |
2019 | -0.37% | -0.35% |
2020 | 1.92% | 1.93% |
2021 | -0.12% | -0.10% |
2022 | 6.01% | 6.04% |
2023 | -3.80% | -3.78% |
2024 | -1.33% | -1.31% |
2025 | 0.37% | 0.39% |
Average | 0.25% | 0.27% |
Is this the final hike?
Bond yields, oil and inflation remain the name of the game heading into October. The RBA lifted the cash rate 25 basis points to 4.60% on Tuesday, its fourth hike this year, in a unanimous decision.
The Board said the Middle East conflict has broadened, leaving energy prices "much higher than had been assumed in the August forecasts", and that higher fuel costs are partly being passed through to other goods and services. The RBA kept the door open to more, saying it will do what it considers necessary, "including increasing the cash rate target further if needed".
Though at the press conference, RBA governor Bullock offered an ever so slightly dovish comment: "We raised interest rates three times earlier this year, a lot of that effect is still to flow through … What we are predicting, what is the hope here, is that [four] interest rate increases will bring things down."
On Wednesday, inflation data for August showed headline inflation jumping on fuel and building costs, but the RBA's preferred underlying measure held steady.
Headline CPI up 4.0% year-on-year, from 3.5% in July
Trimmed mean up 3.6% year-on-year vs 3.6% ests (in line), unchanged for a third straight month
Trimmed mean up 0.2% month-on-month vs 0.3% ests (cooler than expected), from 0.5% in July
That drove a sizeable 0.92% rally on Wednesday, which has been completely offset today, with the ASX 200 down almost 2%. It tells us there was already a lot of hawkishness priced in, so the widely anticipated hike and fractionally cooler-than-expected inflation data were enough to spark a relief rally.
Today, markets have realised nothing's changed. US bond yields are still trading vertically, and Aussie bond yields have started to trend higher again after Tuesday's pullback. So while October may be the 'bear market killer', the outlook depends on more evidence that yields have topped, that market breadth is improving, and that gains aren't just short-lived one-day bounces.
