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Here’s why the S&P/ASX 200 was smashed in September and how you can profit

The Australian stock market plummeted a remarkable 5.9% in September in what proved to be its worst month since May 2012. Any gains made by investors since the beginning of the calendar year were completely wiped out as a tumbling dollar dragged the market’s sentiment down.

Investors largely cooled on the nation’s largest and most popular dividend stocks amid expectations that the United States Federal Reserve will increase interest rates sooner than had been initially expected.

With the Aussie dollar dropping as a result, each of the big four banks tumbled heavily with Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) all entering a “technical correction”. Meanwhile, the supermarket giants and Telstra Corporation Ltd (ASX: TLS) also lost favour with the market.

As if that wasn’t enough, the iron ore price also plunged to fresh five-year lows with Chinese growth continuing to wane. Most strategists have now given up hope that the world’s second largest economy will grow by its targeted 7.5% in 2014, with BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) both falling heavily as a result.

Although it might seem to be all doom and gloom, it is important to remember that it is completely normal for the market to fluctuate heavily, from time to time. In fact, we’ve been suggesting for a long time that we were well overdue for a correction – particularly with many of Australia’s blue chip stocks having climbed to outlandish prices.

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As uncomfortable as it can be, times like these can be the best time to buy shares. As they say, investors should “buy the dip” and take advantage of discounted prices while they last. After all, you never know when they will start to rise again…

In my opinion, the best stock you could buy right now is one that not only offers strong growth prospects, but also a fat, fully franked dividend. Although it recently announced its seventh consecutive year of growth, its shares have retreated in price to offer investors a fantastic opportunity to stock up. But you better be quick, because the real gains will be made by those who get in early.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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