(10/05/11) Why October Should Be Better

This month has a lot of economic reports and other events that could boost the markets, says MoneyShow's Jim Jubak...that is, if the news we get is positive and no other shoes drop.

If there’s hope for October...and I think there is—and I don’t mean in general, I don’t mean either for the Red Sox or the Yankees or whoever you follow in the World Series, either.

If there’s hope for the stock market in October, and I think there is, it lies not in the European Union suddenly discovering a solution to the Greek debt crisis. It lies in us pushing that off the front burner, and paying attention to other things. Here are the other things that happen in October.

First, we get the start of earnings season. Alcoa (AA), which announces earnings on October 11...Alcoa is usually regarded as the beginning of the earnings season.

Well, that will immediately give us a different kind of news flow. We’ll be sitting there going, IBM (IBM) beat, IBM didn’t beat, look at what Apple (AAPL) did, look at what Google (GOOG) did.

And all this stuff will mean that people are going to take this to the fore. The Euro debt crisis will still be there, but we’ll at least have a constant news flow that reminds us of fundamentals, or reminds us that companies do make money no matter what’s going on elsewhere. That focuses on growth.

Those questions really will help the market, because the macro stuff, I think, is going to continue to be really, really sort of stinky, scary, and volatile, but the corporate-earnings stuff I think will be fairly decent. So that’s the 11th.

The other thing that’s really big in October is we get our first read on third-quarter GDP growth in the United States on the 27th.

Now, GDP numbers have really been pretty terrible. First-quarter annualized growth came in at just 0.4%. The second quarter moved all the way up to 1.3%. So we’re really looking at very, very low expectations for the third quarter. Expectations were around 1% growth.

It now looks like, because of the way numbers are timed and all that, we’re starting to see economists and investment banks gradually move their numbers up. It looks like we’re going to see better GDP numbers in the third quarter, growth numbers, than anyone expected like a month ago.

If that’s so, we’re not looking at growth that means that unemployment is going to drop suddenly down to 7% from 9%, but it means that the bar is set so low that we might actually get a positive surprise.

If we do that, I wouldn’t personally overreact and say all the economic problems in the United States are over, but it would be a very pleasant surprise for the stock market. It would leave some people to get overexcited. It would certainly be something that would push the market up.

Would it solve the Euro debt crisis? No, it would have nothing to do with that. Would it solve the issue of whether there’s going to be a global economic slowdown? No, I think that will continue.

It will take attention off of those long-term problems, put them on the short-term problems. And if you’re looking for stock-market psychology, we all know that the market really can have only one thought at a time. This would be the thought, as opposed to worrying about the debt crisis in one country or another, and really not thinking about anything else.

So those are the two reasons to think we might have a decent October. Stocks might move up that month not because we’ve solved problems, but we’ve decided to look elsewhere.