Stocks post biggest monthly gain in 4 years

Stocks drooped Friday but Wall Street still closed out the month of October with the strongest monthly gains since 2011.

The Dow Jones industrial average ended the day down 92 points, or 0.5%, and the Standard & Poor's 500 index dropped 0.5%. The tech-heavy Nasdaq composite index was off 0.4%.

For the month, the Dow gained a whopping 8.6% and the S&P 500 climbed 8.1%. That is the best monthly performance for the S&P 500 in four years when the broad-based index jumped 10.8% in October 2011, according to S&P Dow Jones Indices.

And stocks still posted a fifth straight winning week, as well. The Dow eked out a 0.1% gain for the week and the S&P 500 has notched a 0.3% gain.

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Bulls on Main Street have regained their optimism after 35 weeks of being in a gloomy mood.

The latest weekly sentiment poll by the American Association of Individual Investors showed bullish sentiment at 40.4%. While that's by no means a sign of irrational exuberance, it marks the first time bullishness topped 40% in about nine months.

"After a record run in length almost as long as a pregnancy, bullish sentiment exceeded 40% for the first time in 35 weeks!" Bespoke Investment Group told clients in a research note. "It took the best month for stocks in four years, but we can now finally say that investor sentiment is slightly above average."

The stock market's first correction in four years this past summer and a myriad of other market worries seemed to dim the optimism of individual investors for a long stretch. Late last year, when stocks were on the rise, bullish sentiment was near 60%.

This past week the percentage of individual investors that said they are "bearish" on stocks, or think share prices will fall, dropped for the fourth consecutive week to 20.6%, down from 24% in the previous week.

There's a catch, though. Investor sentiment is a contrarian signal. So when the number of bulls are on the rise, it often is interpreted as a bearish market signal. But not to worry. Bespoke stresses that the "contrarian aspects of investor sentiment are usually more reliable at extremes" rather than the current levels, which are "inline with historical averages."

In trading overseas, Asian stock markets were muted Friday. Japan's Nikkei 225 index was up 0.8% to 19,083.10 after the Bank of Japan left its super-easy monetary policy unchanged. China's Shanghai composite index declined 0.1% to 3,382.56.

European shares were mixed as Britain's FTSE 100 index was down 0.5% and Germany's DAX index gained 0.5%. France's CAC 40 index rose 0.3%.

Thursday, the Dow fell 23.72 points, or 0.1%, to 17,755.80. The S&P 500 dipped 0.94 point to 2,089.41. The Nasdaq composite sank 21.42 points, or 0.4%, to 5,074.27.