The decision to allow the over-fifties to top up their Isas from October 6 could prove inauspicious, given that September and October are reputed to be the worst months for investors.

The UK stock market has fallen by an average 1.3% in September since 1970, according to the Stock Market Almanac. Only two other months have an average return below zero — May and June, with declines of 0.5% and 0.8% respectively.

True to form, the FTSE 100 index closed last week down 57 points on fears that China’s position as the driver of global growth could be faltering. After a sharp rally in the first half of the year, the Shanghai Composite index has fallen 22% since the start of August.

However, October’s record is not quite as bad as its reputation: on average, the market has risen 0.3% since 1970 and there is a 70% chance of a positive return.

We look at prospects for investors.

THE CASE FOR THE BULLS

Bob Doll, chief investment officer at fund manager Black Rock: Many observers have been pointing to the extreme run-up in equity prices over the past six months as a sign that stocks may have come too far, too fast. The Footsie is up 40% since its lows in March and some international indexes have rallied even more — Russia, for example, has soared 57% this year.

Additionally, some warning signs have begun to emerge that suggest we may be facing a near-term correction, such as the breakdown in the Chinese stock market and the possibility that the world is at the start of a cycle of interest rate rises.

While all of these are valid concerns, a number of positive factors must be considered as well. There is still a tremendous amount of uninvested money on the sidelines — data from Merrill Lynch suggests institutional investors put $6.5 billion (£4 billion) into markets in the summer, but cash levels have room to fall further. With cash earning basically zero and benchmark US government bonds yielding less than 4% [and UK gilts just 3.7%], higher risk assets remain a more interesting proposition.

Economic growth, corporate earnings and credit conditions are all continuing to improve, which also creates a more equity-friendly environment.

We have little doubt that markets will remain volatile but as long as policymakers remain focused on the downside economic risks, we expect the positive factors will outweigh the negatives.

THE CASE FOR THE BEARS

Jonathan Jackson, head of equities at Killik: Much of the summer rally has been on fairly low volumes and only now, as investment professionals return to their desks, are we likely to see a pick-up in trading levels. But which way will the market move?

Government stimulus — both fiscal and monetary — has been a key driver of this turnround and, while there is little prospect of the taps being switched off in the short term, the concern for many is that the upward momentum in economic recovery will falter once the medicine wears off.

In addition, unemployment remains a concern. Though it is typically a lagging indicator, the prospect of a further rise and its potential impact on consumer confidence and spending remains a worry. Levels of consumer and government debt are still too high and are likely to act as a brake on the level of economic growth once the government stimulus is taken away.

Maybe this is what government bond yields are telling us? In the UK, two-year gilts are yielding only 0.94%, implying little or no worries about inflation, or perhaps concern about the sustainability of the economic recovery. Given the huge imbalances that have built up over the past decade, it would be amazing if the system has already been fixed. If the hoped-for recovery fails to materialise, the market will be vulnerable to a correction.

Whatever your opinion, we think there is no harm in taking some profits in stocks that have generated strong gains in recent months and reinvesting the cash into stocks that have lagged in the bounce. We would look to take profits from financials, miners and retailers and reinvest in food retail, pharma, telecoms and tobacco.