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Market volatility is normal in October

Heidi Chung

It’s been a wild week for stocks.

Initially, lower-than-expected Consumer Price Index (CPI) data sent interest rates lower and stocks higher in early trading on Thursday before stocks pared those gains and took another dip lower. 

This comes after a brutal session on Wednesday, when the S&P 500 (^GSPC) tumbled more than 3% — its worst one-day drop since February — and the Dow (^DJI) fell more than 800 points. The S&P 500 is now on pace to close in the red for the sixth consecutive day. 

But one market strategist says not to fear the market volatility in October.

“October should be known for volatility, as no month has seen more 1% changes (up or down) for the S&P 500 Index going back to 1950,” Ryan Detrick, senior market strategist at LPL Financial said in a note on Thursday.

Volatility is normal in October, according to LPL Research (LPL Research, FactSet)

The S&P 500 actually had one of its least volatile third quarters in history, and had gone 74 consecutive days without a 1% move, so some type of volatility was likely, according to Detrick.

These kinds of pullbacks are normal, he says. “Even though stocks tend to average a 7%–8% gain each year, they also tend to have three to four pullbacks each year (5%–10% drops) and at least one 10%–20% correction. We got both earlier this year, but history tells us we may get more,” Detrick said.

He attributes the recent volatility to the upcoming midterm elections and the spike in interest rates but remains optimistic.

“Given the fundamentals, we expect the markets to weather this recent volatility, and we see potential for a year-end rally,” Detrick explained.

Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter @heidi_chung

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