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October 2024 Market Brief
Spooky Season; A History of the October Surprise.
âHave you come to sing the pumpkin carols?â- Linus, Itâs the Great Pumpkin Charlie Brown
October has garnered the reputation as a spooky month, and not just due to Halloween. The dreaded âOctober surpriseâ is typically a nasty political shock and the market has experienced extreme historical volatility in Octoberâs past. But we view October through a more positive lens; we are about to enter the strongest 6-month seasonal period for equity markets. Even in election years, November and December are often very strong, typically powered by the Santa Clause rally to close out the year.
October surprise technically applies to a course-changing political event, but October can often catch markets off guard as well. The October surprise phenomenon actually dates back to the 1840 election where the New York Democrats, supporting Martin Van Buren, accused the Whig party in mid-October of paying Pennsylvania citizens to vote in New York, which was a key state. Spoiler alert, it didnât work as Van Buren lost New York and the election, but it kicked off the tradition of a nasty surprise in Presidential election years. The phrase âOctober surpriseâ is often attributed to the Reagan campaign in 1980, which was held under the shadow of the Iranian Hostage Crisis. Reaganâs team was concerned that Carter had already secured the hostagesâ release and would announce it weeks before the election, but it did not happen, Reagan won in a landslide, and the hostages were released just hours after his inauguration. More recently, we have seen the Iran-Contra Affair influence the Bush-Clinton election, an old Maine DUI arrest surfacing for George W. Bush just days before the election (which Bush was able to win by the narrowest of margins), and finally the FBI announcing the reopening of the probe into Hillary Clintonâs emails on October 28th, 2016, just 11 days before the election. In her memoir, Clinton refers to this as Comey âshivvingâ her. As we hit the final countdown to election day, itâs likely that some sort of shocking story will drop in a bid to sway voters. Just keep in mind that the markets are driven much less by politics than by earnings and macro-economic factors, so whatever news drops, donât panic.
In the markets, October has been the unfortunate month of many large, historic crashes. October is generally a positive month, but it is overshowed by some ugly key events. Most famously was âBlack Mondayâ in 1987 where the Dow fell -22.6% in a single day, which remains the largest percentage decline in US market history. But it also includes the 1907 panic along with Black Tuesday, Thursday and Monday in the 1929 Great Depression. October also has more large volatility moves than any other month, with more 1% or greater swings happening than any other month, dating back to 1950. October 2008 was also the worst month of the Great Financial Crisis, falling -16.94% in one month, and solidifying for some investors that the crisis would overwhelm the world. But even with all these negative stories, over the last 30 years the S&P 500 has averaged positive 1.61% in October and is historically followed by an even stronger November and December. Over the last 10 years, the S&P 500 has been negative in November only once, and by a small amount (-0.83% in 2021). So, while markets may seem spooky, and a contentious election looms ever closer, we feel whatever surprises may pop up over the next few weeks will likely not be enough to derail the Bull.