October 2020 Almanac: Worst Month of Election Year
By: Jeffrey A. Hirsch & Christopher Mistal
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September 17, 2020
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October often evokes fear on Wall Street as memories are stirred of crashes in 1929, 1987, the 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989 and the 733-point drop on October 15, 2008. During the week ending October 10, 2008, Dow lost 1,874.19 points (18.2%), the worst weekly decline in our database going back to 1901, in percentage terms. March 2020 now holds the dubious honor of producing the worst, second and third worst DJIA weekly point declines. The term “Octoberphobia” has been used to describe the phenomenon of major market drops occurring during the month. Market calamities can become a self-fulfilling prophecy, so stay on the lookout and don’t get whipsawed if it happens.
 
But October has become a turnaround month—a “bear killer” if you will. 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. Over the last 21 years, October’s performance has been solid. Average gains over the last 21-years range from 1.3% by Russell 1000 to 2.4% by NASDAQ. Small caps have still struggled though with Russell 2000 gaining a modest 0.5%
 
[Election Year October Performance Table]
 
Election-year Octobers rank dead last for Dow, S&P 500 (since 1952), NASDAQ (since 1972), Russell 1000, and Russell 2000 (since 1980). 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 nine occurrences since 1944 when the incumbent was defeated, there were six S&P 500 declines and three advances in October. The average October decline when incumbents were defeated was 2.1%. Even excluding the S&P’s 16.9% plunge in 2008, incumbent defeats were still preceded by an average October loss of 0.3%. 
 
[S&P 500 Monthly % Change in Election Years since 1944]
 
Options expiration week in October provides plenty of opportunity. On the Monday before expiration the DJIA has only been down ten times since 1980 and the Russell 2000 is up twenty-two of the last thirty 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 Dow and S&P 500 “Worst 6 Months” and NASDAQ “Worst 4 Months”. Remain attentive for our Seasonal Buy Signal that can occur anytime beginning October 1. An email Alert will be sent when it triggers.
 
October (1950-2019)
  DJI SP500 NASDAQ Russell 1K Russell 2K
Rank 7 7 9 6 12
# Up 42 42 27 26 23
# Down 28 28 22 15 18
Average % 0.6   0.8   0.7   0.8   -0.4
4-Year Presidential Election Cycle Performance by %
Post-Election 0.9   1.0   1.4   0.9   0.3
Mid-Term 2.6 2.7 3.1 3.5 2.4
Pre-Election -0.4 0.2 0.3 0.4 -1.5
Election -0.8 -0.7 -2.1 -1.5 -2.8
Best & Worst October by %
Best 1982 10.7 1974 16.3 1974 17.2 1982 11.3 2011 15.0
Worst 1987 -23.2 1987 -21.8 1987 -27.2 1987 -21.9 1987 -30.8
October Weeks by %
Best 10/11/74 12.6 10/11/74 14.1 10/31/08 10.9 10/31/08 10.8 10/31/08 14.1
Worst 10/10/08 -18.2 10/10/08 -18.2 10/23/87 -19.2 10/10/08 -18.2 10/23/87 -20.4
October Days by %
Best 10/13/08 11.1 10/13/08 11.6 10/13/08 11.8 10/13/08 11.7 10/13/08 9.3
Worst 10/19/87 -22.6 10/19/87 -20.5 10/19/87 -11.4 10/19/87 -19.0 10/19/87 -12.5
First Trading Day of Expiration Week: 1990-2019
#Up-#Down   22-8   20-10   19-11   21-9   22-8
Streak   D2   D2   D2   D2   D1
Avg %   0.56   0.51   0.59   0.53   0.46
Options Expiration Day: 1990-2019
#Up-#Down   15-15   18-12   19-11   18-12   13-17
Streak   D1   D2   D2   D2   D2
Avg %   0.001   0.002   -0.01   -0.003   -0.10
Options Expiration Week: 1990-2019
#Up-#Down   21-9   22-8   17-13   21-9   17-13
Streak   D1   U5   U1   U1   U1
Avg %   0.72   0.8   0.95   0.80   0.66
Week After Options Expiration: 1990-2019
#Up-#Down   19-11   16-14   17-13   16-14   15-15
Streak   U1   U1   U1   U1   U1
Avg %   0.30   0.14   0.27   0.10   -0.04
October 2020 Bullish Days: Data 1999-2019
  5, 6, 14, 27, 29 5, 6, 14, 16, 19 5, 14, 22 5, 16, 19, 22, 23 None
    22, 23, 29   29, 30  
October 2020 Bearish Days: Data 1999-2019
  7, 13, 21 7, 26 None 7, 26 7, 8, 12, 26