Japan is September’s top market, but who will win in October?

We round up the action in global stock markets in the past month and look ahead to what might happen in October.

Japan’s famous Nikkei was the top performing major share index in the past month as it delivered a 7.46% rise for the four weeks to 28 September.

The climb was largely due to the resignation of Prime Minister Yoshihide Suga, who had become increasingly unpopular over his handling of the pandemic and Japanese economy.

Investors piling into Japanese shares are hoping a more dynamic, business-friendly government will take shape under a new leader.

It was also a good month for Russian shares, in second place after its main index rose 4.39% over the same period. It was followed by Indian market index the S&P BSE 100 which climbed 3.59%.

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Most major indices in developed markets were in the red however, as macroeconomic worries, the Evergrande crisis in China and supply chain issues hit investor sentiment.

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Here in the UK, the FTSE 100 fell 1.29% in the month, while the FTSE 250 dropped 4.04%.

The American heavyweights were also lower, with the Dow Jones shedding 3%, the S&P 500 falling 3.76% and the tech-focused Nasdaq dipping 4.67%.

Turning to individual stocks, September was a stellar month for Rolls-Royce (LSE:RR.). The engine maker’s shares rocketed 24% up to 28th of the month, as investors welcomed news it has clinched deals with the US Air Force and the British government.

British Airways owner International Consolidated Airlines Group SA (LSE:IAG) also saw its shares take off as investor sentiment toward travel stocks improved.

The biggest faller in the FTSE 100 was miner BHP Group (LSE:BHP). Its shares tanked by 18.2% over worries that iron ore could be in a protracted price slump due to a fall in Chinese demand.

What will October bring?

October has seen big falls on a few occasions in the past and has developed quite a reputation as a difficult month. In 2008, the financial crisis prompted a 12% fall in the FTSE All Share for the month, while a 27% crash in 1987 is now known as Black Monday. 

But October is more complicated than that. Up until 2017, its negative reputation failed to reflect its more typical performance, where average equity market returns in October since 1990 were a very creditable 1.6%, according to the UK Stock Market Almanac.

In those 28 years, the UK stock market had only seen negative returns in October six times.

However, the month’s reputation for volatility is deserved though, with only September challenging it in this regard.

Stock market performance has also deteriorated in the past three years. In October 2018, the FTSE All Share index fell 5.4%, it dropped 1.7% the year after and 4% in 2020. Will 2021 be four in a row?

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So, your view on October in recent years depends how you read the data. After a run of three consecutive declines in October, the FTSE All Share has fallen in six of the past 13 years. Or, you could say the index is up in seven years out of 11 since 2010.

There is no Federal Reserve meeting in October, but US central bankers will get together at the beginning of November. That means market expectations on Fed policy are likely to be a major theme once again.

In the UK, Chancellor Rishi Sunak will unveil his Autumn Budget on 27 October. It might not move markets, but inflation will, and any further spike in the cost of living increases the likelihood of interest rate rises next year.

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