updated 10/15/2005 4:44:09 PM ET 2005-10-15T20:44:09

Investors know October is the stock market’s scariest month. But this October finds them even jumpier than usual. The magnitude of the year’s calamities — the tsunami, the Pakistan earthquake and Hurricane Katrina — has prompted some to prepare for disasters of almost every stripe.

Major Market Indices

“How might another influenza pandemic affect the market?” Bank of America strategist Thomas McManus wrote to clients this past week.

The declines in the first half of the month haven’t made anyone calmer. The Dow Jones industrial average has fallen 281.36 points, or 2.66 percent so far. Percentage declines in the Nasdaq composite and the Standard & Poor’s 500 are even steeper: The Nasdaq has lost 4.03 percent and the S&P, 3.44 percent.

Now that we’re midway through the month, it’s worth looking back at what past Octobers have brought and looking ahead to assess investors’ biggest fears for the immediate future.

If investors think October has the potential for absolute misery, it’s because most of the market’s darkest days came in October: the crash of 1929, the Black Monday crash of 1987 and 1989’s Friday the 13th mini-crash. According to “The Stock Trader’s Almanac,” Oct. 11 has historically been the worst trading day of the year.

But is October really that bad? The truth is that October might be best compared to a usually charming friend who gets drunk and mean only on the extra day of a leap year.

Over the last 33 years, the major indexes have gained points in October more often than they’ve lost. Even on Oct. 11, there’s still a 23.8 percent chance the market will rise, according to the Trader’s Almanac. That doesn’t sound half bad if you’re, say, a Cleveland Indians fan.

This year, Oct. 11 was a ho-hum day, ending mixed, with the Dow up slightly, but the Nasdaq and S&P 500 down slightly.

October tends to be the month the market hits bottom and moves higher, according to Jeffrey Kleintop, chief investment strategist for PNC Advisors. Some call October “the bear killer,” since October has turned the tide in nine of 18 bear markets following World War II.

“In both 2002 and 2004, October saw a weaker stock market and declines in the index for the year, but then led into a strong rally,” he said.

While October in general may not have earned its nasty reputation, this October, investors are looking at both Biblical-scale disasters and worrying economic issues. There’s enough to keep everyone up at night. We culled reports from just one firm, Merrill Lynch, for just this past week. Below are highlights of Merrill’s most pressing concerns:

Consumer spending
Bankruptcy lawyers are busy. Tougher bankruptcy laws go into effect Oct. 17. In the first week of October, a record 102,863 Americans filed for personal bankruptcy, according to Lundquist Consulting, which tallies weekly bankruptcy statistics. That’s more than 20,000 a day on average. Compare that to the weekly average for the past four years, which is 30,000 filings. So far this year, 1.4 million Americans have declared bankruptcy, up 20 percent over the same period last year.

Deflation
“Folks, this is still a deflationary world,” said David A. Rosenberg, a Merrill Lynch economist. “The airline industry, which is the closest to the oil price runup, is having problems raising fares.” Instead, it’s cutting jobs.

The housing market
The housing market is getting softer. Inventory of existing homes, condos and new homes on the market is up. Unsold new homes have jumped to a five-year high.

The Fed
Investors have been hoping for months that the Federal Reserve would signal the end its short-term interest rate increases. Instead, notes form the Fed policy maker’s Sept. 20 meeting read “further rate increases will probably be required.”

“We are now convinced the Fed it going to tighten through year-end and into 2006,” Rosenberg said.

Kleintop’s assessment of the Fed watch is “we’re all at that same point of wondering what the end is.”

Why is this so important? Because stocks rally near the end of a Fed tightening regime.

“There’s never been a decline in the stock market in the 12 weeks prior to the end of a series of Fed rate hikes,” Kleintop said. “It’s always been up and the average is 5 percent. Everyone knows that, so they’re all waiting for that. If (the Fed stops) in December, then November starts the rally.”

If the Fed doesn’t stop until sometime in 2006, then the market may see many more spooky days after October is over.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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