Market mayhem: October’s rough ride in perspective

If you have any of your savings tied up in stocks, mutual funds, ETFs or group RSPs, you’ve probably noticed what’s been happening to global stock markets lately.

They’re down – way down – from recent peaks.

READ MORE: Why stocks, oil plunged this week – and whether the worst is over

Just a month ago, most markets were riding high.

On Sept. 18, the U.S. stock market reached a record high after a mostly uneventful summer. Long-term interest rates headed higher, a sign that investors expected steady U.S. growth. A widely watched measure of volatility in the U.S. stock market was near its lowest level of the year, and European markets were heading higher after a nasty downturn over the summer. The price of crude oil was declining, but nothing like the sudden plunges that would come weeks later.

Recent key market moves

The TSX is down approximately 10 per cent from its September peak, which is official correction territory. But the drop still leaves the market up 8.1 per cent for the year.

A month ago, the Dow Jones Industrial Average closed at a record 17,279. Since then, it has suffered eight triple-digit losses and is down 7.5 per cent from its peak. But it’s up 6.37 per cent on the year.

The Standard & Poor’s 500 index nearly went into “correction” last Wednesday, briefly wiping out the year-to-date gains for the index. It’s down 5.7 per cent in a month, but up
2.1 per cent for the year.

The U.S. Treasury market had one of its biggest moves in recent memory on Wednesday. The yield on the 10-year Treasury note dropped precipitously as prices on the notes surged. A rush to buy U.S. government debt, which is seen as extremely low-risk, can indicate investors are fearful of disruptions in other markets or expect the U.S. economy to slow down.

In one morning the yield dropped from 2.20 per cent to as low as 1.91 per cent, a huge move that would normally take weeks. The magnitude and suddenness of the drop shocked investors, and left many puzzled over what caused it.

By the end of the week trading had stabilized. The yield on 10-year notes was 2.20 per cent on Friday, down from 2.62 per cent a month ago.

Government of Canada 10-year notes fell by almost as much – from 2.25 per cent a month ago to 1.95 per cent on Friday. Yields on government bonds dictate which way interest rates that you and I pay on loans and mortgages will move.

The price of crude oil has had some steep drops in recent weeks, and has been in more or less steady decline since hitting a peak of USD$107.26 a barrel in June. On Friday it closed at USD$82.75 a barrel, 23 per cent below that peak. Ample global supplies, high production levels and expectations of slowing demand in China and in Europe as economic growth weakens have driven down the price of oil.

While cheaper prices for oil and gas are good for drivers, airlines and many others, they mean trouble for energy company profits.

Crude prices are down 12.2 per cent over the past month and 15.7 per cent for the year.

MORE: Oil’s crash threatens to derail booming Alberta — and Canada too

October – the cruellest month?

October and market meltdowns seem to go hand in hand.

There was Black Monday – Oct. 19, 1987. The Dow Jones Industrial Average lost almost 22 per cent of its value that day. The volatility spread across the globe so that by the end of that month, most major exchanges had fallen by 20 per cent.

In Toronto, stocks plummeted by 11.3 per cent on Black Monday. That’s the worst one-day drop on record for the Toronto market. Prices recovered a bit, but plunged another 7.6 per cent the following Monday.

In the wake of the financial crisis that gripped Wall Street six years ago, Toronto stocks took a 6.95 per cent hit on Oct. 2, 2008.

On Oct. 25, 2000, the Toronto index took its second-worst one-day hit when the average fell by 8.1 per cent. That was due to the collapse of one company – Nortel Networks, which accounted for a third of the value of the TSX.

And then there’s October 1929. Wall Street crashed over several days late in the month. The market lost 20 per cent of its value over two days, marking the end of the Roaring 20s and the beginning of the Great Depression. By the time the bloodletting was over, the market had fallen by 90 per cent.

On the flipside, falling markets mean stocks that seemed too expensive a few weeks ago might be a more attractive investment now. If the bleeding is over.

— With files from the Associated Press