Some $33bn (pounds 20bn) has flowed into money market funds since the beginning of August, more than twice the monthly average through July of this year. "There's a huge amount of cash on the sidelines," said Peter Crane, of IBC Financial Data. "There's some mythology surrounding the crash of 1987, coupled with October's track record of having some drops in recent years."
Abundant pessimism and piles of cash could mean good news for stocks. The best time to buy is when the market bottoms; the more cash pours in, the bigger the jump. And while October can be a month of crashes, it has also been the month of quick rebounds as investors rushed to buy stocks at discounts.
For the week, the Standard & Poor's 500 Index fell 1.2 per cent, led by Raytheon and Fort James. The Dow Jones Industrial Average dropped 2 per cent, led by Hewlett-Packard and IBM. The Nasdaq declined 0.6 per cent after suffering its biggest loss in seven weeks on Wednesday. Quintiles Transnational posted the biggest loss - 46 per cent - after the largest conductor of clinical trials for drug makers warned profit will miss analysts' estimates this year and next.
Optimism about US stocks fell to its lowest level in 11 months last week. "Everyone always expects some kind of correction in August, September or October," said Ken Schapiro, president of Condor Capital Management. Though Mr Schapiro said he's bullish on stocks and holds only about 4 per cent in cash, some of his clients are pessimistic around this time of year. Since 1964, there have been 11 autumn declines of more than 10 per cent, and in seven of them the worst damage came in October.
There are other reasons to hoard cash. "It's pretty much a seasonal thing - you see a lot of cash build up in the fall for college tuition and other fall purchases," said Mr Crane. Consumers also may be storing cash in advance of the approaching new millennium, he added.
Investors could be concerned about the 5 October meeting of the Federal Reserve, where policy makers could raise interest rates for the third time since June. And interest rates are fuelling that concern - the yield on the benchmark 30-year Treasury bond has risen almost a percentage point this year.