Guide for Nervous Investors: What to Track in October

Stocks closed out their worst quarter since the financial crisis, but it might be too early for investors to breathe a sigh of relief, as volatility will likely continue.

Traders work in the crude oil options pit at the New York Mercantile Exchange.
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Traders work in the crude oil options pit at the New York Mercantile Exchange.

The ongoing developments in the euro zone and U.S. deficit talks will continue to take center stage in October, and strategists say the events will likely lead to further choppiness in the markets.

Here are some major events (and a few notable market anniversaries) that traders and investors will be closely watching.

Oct. 4: Bernanke on Capitol Hill on Economic Outlook

The Fed chairman is expected to deliver a speech on the economic outlook and is likely to be grilled by lawmakers on a broad range of topics from further fiscal stimulus to the possibility of another recession.

“Last time Bernanke spoke, he pointed out that there is 'significant weakness' in the economy, which people weren’t used to hearing,” said Joe Saluzzi, co-manager of trading at Themis Trading. “If we get more of that on Tuesday, then expect a selloff.”

“Still, the power from the Fed is waning and they don’t have as much push as they used to have,” added Saluzzi. “In the end, the system will fix itself.”

Oct. 4: EU Economic & Financial Affairs Council (Ecofin) Council Meeting

While some strategists say nothing significant will emerge from the meeting in Luxembourg, the euro may face additional pressure if the council shows any signs of reluctance to approve the next round of bailout aid for Greece.

“[These meetings] are just noise and headlines,” said David Marcus, lead portfolio manager of Evermore’s Global Value and European Value portfolios. “There’s an effort from the leaders of the euro zone to move forward, but it’s just taking time.”

Oct. 6: ECB Rate Meeting

“I don’t expect them to do anything in terms of increasing rates … I feel like they’ll just do nothing,” said Marcus.

Oct. 6: Lagarde/Trichet/Merkel Discuss Currencies in Berlin

IMF head Christine Lagarde, ECB President Jean-Claude Trichet and German Chancellor Angela Merkel are scheduled to hold talks on the euro and other currencies.

Oct. 9: Anniversary of Stock Market Peak (2007)

On this day in 2007, the Dow and S&P hit all-time highs and the Nasdaq surged to its highest level since the dot-com bubble.

The Dow closed at 14,164.53, S&P ended at 1,565.15 and the Nasdaq finished at 2,859.12.

Oct. 11: Alcoa Earnings (Start to 3Q Earnings Season)

"We are worried that the guidance that will accompany the coming earnings season will disappoint." -Strategas Research, Jason Trennert

Dow component Alcoa is slated to report earnings on Oct. 11, kicking off the unofficial start to earnings season.

"We are worried that the guidance that will accompany the coming earnings season will disappoint, especially within the financials and industrials sector,” wrote Jason Trennert of Strategas Research in a client note. “Estimates for 2012 have indeed started to decline in recent weeks but not nearly enough, in our view, to insulate investors from what could be an especially sloppy earnings season.”

Oct. 13: European Leaders Meet to Decide on Greek Aid Payment

“They’re going to give Greece the money—they’re still trying to avoid pulling the plug but it’s still unavoidable,” said Marcus. “They might get funding for the immediate term, but I wonder if that’s part of the bigger program to start managing an orderly default.”

Meanwhile, some strongly believe that Greece's default is imminent.

“It's very likely we'll see a Greek default in October," said Matthias Kuhlmey, managing director and partner at HighTower, adding that while the markets will see a knee-jerk reaction, the move could "actually be a net positive for the market" if performed in an orderly fashion.

Kuhlmey also noted that despite the euro zone's best efforts to expand the EFSF, the amount is not enough to make emergency loans and rescue banks.

“The EFSF needs at least $3 trillion to $5 trillion," said Kuhlmey.

As of the end of September, 14 of the 17 euro zone countries have voted in favor of the expansion. Malta, Netherlands and Slovakia will vote in the coming weeks.

Oct. 14-15: G20 Finance Ministers Meeting

Further pressure will likely be added on the euro zone ministers to act faster on the debt crisis measures.

Oct. 19: Black Monday Market Crash Anniversary (1987)

The Dow’s drop on 1987’s “Black Monday” was the biggest single-day percentage drop in the U.S. stock market history—almost 23 percent. An equivalent percentage drop at today’s market levels would translate into a loss in one trading session of more than 2,500 Dow points, which would bring us near 8,500.

Oct. 31: ECB Trichet’s Last Day in Office

ECB’s Jean-Claude Trichet's term as President ends and will be replaced by Italy’s Mario Draghi.

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