November Outlook: Best Six Months Queued Despite Turmoil
By: Jeffrey A. Hirsch & Christopher Mistal
October 26, 2023
Once again, we find ourselves in a time of global turmoil in October. As the market enters the Best Six Months of the year the world is captivated by heightened geopolitical tensions. The Russia-Ukraine war helped drag stocks into a bear market in 2022. And now Hamas’ attack and Israel’s response has pushed the entire region and the rest of the world are on high alert. This is not new ground in the Mideast. The loss of life is terrible and unnecessary. 
What does this mean for the market? And what’s the history when turmoil grips the planet in October heading into the Best Six Months of the year? These are somewhat trick questions, and any answer is subjective. So, we tried to take an honest look at the current state of affairs. Since WWII there has been an ongoing war or international conflagration going on practically all the time. Things have come to a head in October many times with several happening in the Mideast. Current events in the Middle East are especially tense. It is the de facto global hotspot and has been since time immemorial. 
The following table is a selection of what we felt were some especially tense times in October just ahead of the Best Months that correlate with the current situation. It’s not a perfect dataset, but it does provide some perspective. We’ve tried to pinpoint the Recent High related to the crisis and then the nearest Subsequent Low around October. We have included the nearest Crisis Low, the Q4, Year, Best Six Months and Next Year % Changes. Remember many of these crises ran over more than one year and were impacted by multiple events and debacles. 
[Best Six Months Global Turmoil]
Egypt seized the Suez Canal in July 1956 and Israel attacked across the Sinai on October 29. Meanwhile, Russian tanks rolled into Hungary to crush the revolution that began on October 23. 1962 was marred by the Cuban Missile Crisis with the U.S. naval blockade lasting from October 22 to November 20. The 1973 Arab-Israeli War was right in the middle of the 1973-1974 bear market, which was also impacted by the subsequent Oil Embargo, Watergate, going off the gold standard and end of the Vietnam war.
The market held up pretty well in pre-election year 1979 despite the Iran Hostage Crisis, USSR invading Afghanistan, the 1980 recession and the Hunt Brothers attempt to corner the silver market in early 1980. The Kuwait War in 1990 was a blip with a mini bear and down year but a smart rally off the midterm low. 2001 and 2002 run together set off by 9/11, then the USA-Afghan War into the 2002 midterm low during the build up to the Iraq War in 2003. The market peaked in October of pre-election year 2007 in the early stages of the 2007-2009 Global Financial Crisis then fell apart in October 2008 with the ultimate low in March 2009.
Our overall observation of these tumultuous times is that these events exacerbated a market decline already in progress. We find ourselves today at a similar crossroads with the Hamas attack, Israel’s reaction and unrest in Mideast and on the world stage. We hope discretion is the better part of valor, but we must be prepared. If this situation can be contained the market will likely rally sharply. If it drags on or escalates that will likely negatively impact the market. 
Economy Strong, Still In Seasonal Weak Area
As we noted in the past several issues, especially after our October 9 Best Six Months Seasonal MACD Buy Signal, near-term volatility is to be expected with some backfill throughout October. Unfortunately, our buy signal was a bit early, but we never promised we’d nail the exact low. And we still believe this weakness can be an opportunity to accumulate new long positions for the “Best Months” or add to existing. 
We are still in the seasonal weak window, and until proven otherwise the Best Months are set up well. DJIA has not even entered the 10% correction area and the Russell 2000 was up today, bouncing encouragingly off last year’s lows. Economic readings remain strong, especially GDP and jobs. We have been expecting a 5-10% correction since the summer. DJIA is down -8.0%. S&P -9.8% and NASDAQ is off -12.3%. As you can see in our updated seasonal charts this downdraft lines up with the late October lows. But if things hit the fan, we will pivot and respond accordingly and issue an interim special alert if we deem it necessary. 
We are reminded of the wise old words of the late Edson Gould: “If the market does not rally, as it should during bullish seasonal periods, it is a sign that other forces are stronger and that when the seasonal period ends those forces will really have their say.” Stick with the system but remain calm and stay alert.
[NASDAQ Pre-Election Year Seasonal Chart]
[S&P Pre-Election Year Seasonal Chart]
Pulse of the Market
Early October gains were broad and lasted long enough to satisfy the criteria to issue our Seasonal MACD Buy Signal when the market closed on October 9 (1). Those gains were short-lived as war once again broke out between Israel and Hamas. Octoberphobia has struck, again, and DJIA is currently on track to finish the month in the red. DJIA is currently trading under both its 50- and 200-day moving averages (2), but it has not taken out its lows from earlier this year in March around 32000.
Dow Jones Industrials & MACD Chart
Earlier this week, DJIA recorded its eighth Down Friday/Down Monday (DF/DM) of the year (3). This occurrence followed DJIA weekly declines in four of the last five weeks and 8 of the last 12 weeks. As noted on page 78 of the 2023 Almanac, DF/DM’s have tended to occur at or near market inflection points, often significant trend reversals. Currently, clear signs of a reversal are still absent.
S&P 500 (4) and NASDAQ (5) have suffered even greater losses than DJIA since the start of August and both have been down in 8 of the last 12 weeks. For now, this represents the seasonal weakness we have been concerned about since June.
Market breadth over the last four weeks has been negative with Weekly Decliners outnumbering Weekly Advancers in all four weeks (6). During the week ending October 6, negative breadth was likely due to broad declines on October 3. Last week’s 2278 Weekly Decliners were the greatest since March 10, which was just before the market found support and resumed rallying.
Weekly New Highs appear to have bottomed out in early October and have been rising since (7). Weekly New Lows also appear to have reached a peak in early October (7). Any acceleration in these trends would be welcome as it would suggest that the worst of the pullback/correction is most likely over. 
Based upon the 90-day Treasury rate (8), it would appear most expect the Fed to be done raising interest rates. It may be too early to call the bottom in bond price (low price, higher yield), sentiment does appear to be improving with at least one brave analyst raising their exposure to bonds, especially longer-dated ones. Also of note is the 30-year Treasury bond yield reaching 5.00% last week. This is its highest yield since July 2007.
Pulse of the Market Table