October Almanac, Vital Stats & Calendar: Much Better When Incumbent Party Retains White House By: Christopher Mistal & Jeffrey A. Hirsch | September 27, 2016 | Email | Print

 

But October has also been a turnaround month—a “bear killer”. Twelve post-WWII bear markets have ended in October: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002 and 2011 (S&P 500 declined 19.4%). However, eight were midterm bottoms. This year is neither a midterm year nor is a bear market in progress, thus October’s performance in past election years is of greater importance.

 

Election-year Octobers rank dead last for Dow, S&P 500 (since 1952), Russell 1000, and Russell 2000 (since 1980). NASDAQ fairs slightly better, with October being the second worst month in election years since 1972. Eliminating gruesome 2008 from the calculation provides a moderate amount of relief, as rankings climb to mid pack. Should a meaningful decline materialize in October it is likely to be an excellent buying opportunity, especially for any depressed technology and small-cap shares.

 

 

Another interesting aspect of election-year Octobers is the propensity for S&P 500 gains when the incumbent party ultimately retains the White House. Of the ten incumbent victories since 1944, the S&P 500 has advanced seven times, declined twice, and was unchanged in 1944 with an average October gain of 1.4%. Of the eight occurrences since 1944 when the incumbent was defeated, there were five S&P 500 declines and three advances in October. The average October decline when incumbents were defeated was 2.2%. Even excluding the S&P’s 16.9% plunge in 2008, incumbent defeats were still preceded by an average October loss of 0.1%. 

 

 

Options expiration week in October provides plenty of opportunity. On the Monday before expiration the DJIA has only been down seven times since 1980 and the Russell 2000 is up twenty of the last twenty-six years, seventeen straight from 1990 to 2006. Expiration day has a spotty record as does the week as a whole. After a market bottom in October, the week after is most bullish, otherwise it is susceptible to downdrafts.

 

October is also the end of the DJIA and S&P 500 “Worst 6 Months” and NASDAQ “Worst 4 Months”. Remain on the alert for our Seasonal MACD Buy Signal that can occur anytime beginning October 3. An email alert will be sent when it triggers. At that time we may establish new long positions in SPDR DJIA (DIA), SPDR S&P 500 (SPY), PowerShares QQQ (QQQ) and iShares Russell 2000 (IWM). We may also pickup any remaining open recommendations from the ETF Portfolio.