It’s October! Does this mean UK stocks will crash?

On October 19, 1987, the FTSE 100 – an index of the UK’s leading shares – lost 10.8%. Thirty-seven years later, it’s easy to forget that Black Monday was followed by an even worse Tuesday, when the index dropped another 12.2%.

The UK was not alone. Global stock markets are estimated to have lost $1.7trn due to the massive sell-off.

And history tells us that October can be a volatile time for Footsie. Four of the five largest one-day falls (and six of the 10 largest) all occurred in the same month as Halloween. As someone who has a lot of his portfolio invested in the index, I find this scary.

However, conditions are very different today than in years past.

1987

Black Monday is blamed for an extended bull run in US stocks.

Five years before the accident, the The Dow Jones Industrial Average increased by 250%. Although the recent rally in the US stock market has been a strong one, the S&P 500 ‘only’ increased by 93%, since October 2019.

Another factor that has contributed is said to be the increase in interest rates and the depreciation of the dollar.

But the Federal Reserve has recently started to reduce borrowing costs. And the US Dollar Index is down just 4% over the past five years.

2008

Twenty-one years later, the October riots were triggered by the global financial crisis. Today, although the global economy has not fully recovered from the pandemic, it seems to be moving in the right direction.

I don’t expect a stock market crash this month, although nothing can be avoided. However, without a long-term view, I’m not sure how expectations can be translated into an effective trading strategy.

But if I were predicting a period of volatility for UK shares, there is one share I would like to have in my portfolio.

Keeping the lights on

National Grid (LSE:NG.) has some buffers that should make it better than most against a financial downturn.

Its gas and electricity supply business should be largely unaffected by market turbulence. In the months following Russia’s invasion of Ukraine, its stock price rose. And while it went down in the early days of the pandemic, it recovered faster than most.

Importantly, the company enjoys a dominant position in its key markets. Therefore, it is not necessary to waste time (or spend money) to find new customers.

However, it is a regulated business and cannot charge what it likes. It is also necessary to maintain a certain level of investment. In June, it surprised investors by announcing a £7bn rights issue to help meet its obligations.

But as long as everything is planned, he must know with reasonable certainty what the rate of return will be.

Over the past three years, it has been able to increase its basic earnings per share by 13%. And this means that its benefits are reliable and predictable. The stock currently yields 5.9%, above the FTSE 100 average of 3.8%.

On balance, I believe National Grid would be a good stock to own if I think the market will enter a period of volatility. However, I don’t expect any chaos so I don’t want to invest yet.