by Jason Bodner
October 8, 2024
October usually means a reduction in hurricane activity, but new potential threats are popping up. There are a few storms forming in the Atlantic and one possibly forming in the Gulf of Mexico with potentially the same path as Helene. And given Helene’s cataclysmic destruction, that’s very unwelcome news.
October 12th was the date when Christopher Columbus and his crew arrived in the New World in 1492. He, too, encountered hurricanes on his later voyages. In fact, in 1494, he wrote to Queen Isabella about a storm he has forced to go through, providing the first recorded description of a hurricane to Europeans.
October can be a perplexing month for stock investors, too. Before 1990, October was considered a scary month, but since 1990, the month has been strong. Still, it’s not quite that simple…October has been quite volatile. And then, we have Octobers in election years, like now. They often bring an “October Surprise.” These are market-moving scandals designed to embarrass a political opponent. For example: The Iran Contra Scandal, or a candidate’s drunk driving record, or Hunter Biden’s laptop, or Hillary’s emails.
It can leave us questioning how navigable the month really is.
This week, I will investigate what the data tell us about October, and what we might expect.
To begin, Octobers are the start of the seasonally strongest quarter of year. As seen in the table below, average returns for October, November and December, 1990 through 2023, are solidly positive:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The one caveat is that 22 of the last 34 Octobers (since 1990) were positive for the S&P 500 – or 64.7% of the time. Contrast this with a stronger 73.5% for November and 76.5% for December. In any case – the fourth quarter was positive for the S&P 500 71.5% of the time since 1990, which is great!
Octobers have a tumultuous side, too. It turns out that the first half of October is visibly weaker on average than the second half. I looked at all Octobers from 1990 to now and saw some interesting things.
First, in the table on the left, we see that the ratio of unusual buying to selling is in favor of the sellers. The average daily ratio from October 1-15 is 43%. There are 10 of 15 days where the ratio is below 50%.
In the chart on the right, we can see that the first half of the month was less strong than the back half. Note that October 28th sported an average +1.11% day or cumulative +26.7%!
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Naturally, results are skewed from some seriously volatile Octobers of years past, most notably: 2005, 2008, 2011, 2014, 2018, 2020, and 2023, not to mention that off-the-chart traumatic October in 1987.
Now, let’s look at election years encompassing the potential October surprise. The election years in our survey were 1992, 1996, 2000, 2004, 2008, 2012, 2016, and 2020. The first thing we notice in the same chart is that the first half of election year Octobers are weaker than normal years. Election year second halves of October are stronger than regular years. Again, there are volatile years in there, such as 2008:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What is also very striking is that Octobers during election years are negative, with an average return of -2.5% whereas the average of all Octobers is +1.5%. So, we shouldn’t sweat a choppy first two weeks, since they are expected. The last two weeks are usually quite good. Election years hold a little more volatility, but they still show a stronger back two weeks than first two weeks.
This is consistent with what I am seeing in the Big Money Index (BMI). We saw a mammoth rip in the BMI since July as money came flooding into stocks, although in a choppy path. The SPY (the S&P 500 tracking ETF) also rose during that time. Since late August, however, the BMI flattened-out and even down ticked over the past few days, from 74.5 on September 29th to 72.9 today. If October follows its historical implications, we might expect the BMI to fall in the first half of October (the left chart).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We also need to keep an eye on unusual buying and selling. We can see in the chart on the right that buying hit a local peak on September 19th and has been steadily declining since. Selling has also seen a small uptick. I am not alarmed, but it would not be surprising to me to see some more October volatility.
We can also see the stalling effect of the Fed’s rate cut. We saw explosive price action since the Fed announced their 50-basis-point cut on September 18th. But as you can see in the individual sector charts below, some sectors are running out of steam, although Utilities continues to power higher.
On the other hand, Industrials are giving some back after a parabolic move. Technology cannot pierce its prior highs. Financials, Materials, Discretionary, Real estate, Staples, Communications, and Health Care are all retreating from their highs. That is totally expected and normal after such strong runs, but it is something to take note of as we head into a historically bumpy two weeks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Energy is a notable pocket of strength on the heels of the inflamed situation in the Middle-East. The ongoing and developing skirmishes and putting upward pressure on the price of oil lifting the entire sector. That said, it still has a way to go to eclipse prior highs. Here is how the sector rankings shake out:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Will we get an October surprise? History says there’s a good chance. It also says we should expect a lift in the back half of the month. Election years deliver more chances for volatility. The best part is November and December are probabilistically and seasonally the strongest months of the year.
Uncertain times don’t mean you should abandon course. When it comes to investing, remember Lao Tzu: “If you do not change direction, you may end up where you are heading.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Positive Earnings Usually Deliver the Best October Surprises!
Income Mail by Bryan Perry
It’s Past Time for a Federal Government Spending Overhaul
Growth Mail by Gary Alexander
Economies Don’t “Land” (Hard or Soft), They Just Keep Growing
Global Mail by Ivan Martchev
Beware the Market’s “Geopolitical Overhang” in October
Sector Spotlight by Jason Bodner
October is a Month of Mysteries, Surprises and Split Personalities
View Full Archive
Read Past Issues Here
Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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