November starts a great stretch for Wall Street

October, the spooky, volatile month best known for stock market crashes, is finally over after giving investors a brief, frightful scare. The Dow Jones industrials and Standard & Poor's 500 are back at record levels.
Enter November. A month with a market-friendly reputation and the gateway -- and starting point -- to what historically has been the most bullish six-month period for U.S. stocks.
"After October," says John Manley, chief equity strategist at Wells Fargo Funds Management, "the seasonality usually starts in the investor's favor."
The historical performance statistics back up Manley's claim.
• November is the Dow Jones industrial average's second-best performing month in the past 20 years, with average gains of 2.05%, says Bespoke Investment Group.
• November marks the start of the best six-month period for stocks, the Stock Trader's Almanac says. In the November-thru-April period since 1950, the Dow has posted average gains of 7.5%, vs. a gain of 0.3% for the worst six-month period which runs from May thru October.
• November also provides an added performance booster shot in the fourth-quarter during mid-term election years, according to S&P Capital IQ data since 1928. The S&P 500 has posted average gains of 6.47% in the October-thru-December quarter in mid-term election years. (Americans head to the polls Nov. 4.) On average, the stock market posts gains of 2.59% in the final quarter of a year.
The fact November tends to kick off good times for stocks, however, doesn't mean the market doesn't have risks to contend with in November and beyond.
Indeed, November marks the first month in two years in which the Federal Reserve will not be pumping billions of dollars into the financial markets each month in the form of asset purchases. The Fed announced Wednesday that it was ending its bond-buying program, known as quantitative easing, or QE, in October.
"As the more serious discussion about raising rates begins, markets may respond less well," says Michael Farr, president of money-management firm Farr Miller & Washington. Indeed, any hints from the Fed that rate hikes will come earlier in 2015 than currently anticipated could cause market turbulence.

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Stock investors will also be grappling with the prospect of coming interest rate hikes from the Fed in 2015, and the market is likely to become more volatile as projections of when the first rate hike will come moves either forward or backward due to incoming economic data.
The outcome of the Congressional elections and the impact on the balance of power on Capitol Hill could also sway markets. Also giving investors potential pause: economic conditions in Europe remain weak, uncertainty surrounding the Islamic State and domestic terrorism, and the kickoff to the holiday shopping season on Thanksgiving.
"There's also the potential for new surprises," adds Farr.

Specialist Robert Tuccillo, right, works at his post on the floor of the New York Stock Exchange Monday, Oct. 27, 2014. 

Still, with October-phobia ending, Ebola fears fading, Corporate America still churning out better-than-expected profits, and the U.S. economy showing signs that it is capable of consistently growing at a 3%-plus pace, it's hard to get overly bearish on the market in November.
"When you get to November, people start thinking of a year-end rally," says Jeffrey Hirsch, editor of the Stock Trader's Almanac. "The history of seasonal strength has a psychological component to it, a self-fulfilling prophecy. So, yeah, everyone is ready to jump on the (bullish) bandwagon. We suspect we will see a traditional pattern this year."
Driving the gains, Hirsch says, is the fact the broad U.S. stock market suffered a drop of more than 9% from its recent record highs in October, which took some of the froth out of the market. Fresh buying driven by the start of mutual funds' new fiscal year, an upbeat holiday vibe, end-of-year bonuses and other bullish factors also provide a tailwind for stocks, he says.
Also working in the stock market's favor is its uncanny ability to consistently post gains after the mid-term elections.
"History tells us that stocks should advance after the mid-term election," says Carmine Grigoli, chief investment strategist at Mizuho Securities USA. "Stocks have rallied post-election regardless of the political outcome …, suggesting that the elimination of uncertainty and an end to the political rhetoric is constructive for the markets."
Historically, equity returns following the midterm elections tend to be superb, with a median return of 7% in the 90 days following a mid-term election, according to Barclays. Since 1928, returns have been positive 86% of the time.
The market has a shot at its old 2014 highs, says Nick Sargen, senior investment advisor for Fort Washington Investment Advisors.
"There is ample cash on the sidelines and the fears about a global slowdown are abating," says Sargen. "People don't know where else to put their money with bond yields so low."