October 2024 Almanac & Vital Stats: Toughest Month of Election Years By: Jeffrey A. Hirsch & Christopher Mistal | September 19, 2024 | Email | Print

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. October can evoke fear on Wall Street as memories are stirred of crashes in 1929, 1987, the 554-point DJIA drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989 and the 733-point DJIA drop on October 15, 2008. During the week ending October 10, 2008, DJIA lost 1,874.19 points (18.2%), the worst weekly decline, in percentage terms, in our database going back to 1901. March 2020 now holds the dubious honor of producing the largest and third largest DJIA weekly point declines.

 

However, October has been a turnaround month—a “bear killer” if you will, turning the tide in thirteen post-WWII bear markets: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002, 2011 (S&P 500 declined 19.4%), and 2022. Only 1960 was an election year. While not in an official bear market this year, the market has endured bouts of seasonal weakness this year in early August and at the beginning of September. Despite today’s solid, Fed-rate-cut fueled rally, another round of weakness ahead of Election Day cannot be ruled out entirely.

 

Over the last twenty-one years (2003-2023), the full month of October has been a fairly solid month for the market, ranking #4 for DJIA, S&P 500 and NASDAQ, #5 for Russell 1000 and # 6 for Russell 2000. All have logged average gains ranging from 0.8% by Russell 2000 to 1.5% by NASDAQ. But these gains have been accompanied by volatile trading, most notably during the early days of the month. 

 

 

October has historically opened softly with modest average gains on its first trading day. On the second day, all but Russell 2000 have been weak followed by a rebound on the third trading day before additional weakness pulled the market lower through the seventh or eighth trading day. At which point, the market has historically found support and begun to rally through mid-month and beyond. In election years since 1950, October has been weak from the start with some strength around mid-month followed by a second wave of weakness before rallying to the finish with a loss. Steep declines in October 2008 do influence the pattern, but weakness persists even when 2008 is excluded.

 

 

Election-year Octobers rank dead last for Dow, S&P 500 (since 1952), NASDAQ (since 1972) and Russell 1000. For Russell 2000 (since 1980) election year Octobers rank #11, March is worst. Eliminating gruesome 2008 from the calculation provides a little relief, as rankings improve at most two steps (DJIA). Should a meaningful decline materialize in October it may 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 ten occurrences since 1944 when the incumbent was defeated, there were seven 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 0.6%. 

 

 

Monthly options expiration week in October provides plenty of opportunity. On the Monday before monthly expiration DJIA has only been down 10 times since 1982 and the Russell 2000 is up twenty-five of the last thirty-four years, seventeen straight from 1990 to 2006. Expiration day has a mixed record while the week as a whole has been improving with S&P 500 up fourteen of the last sixteen with an average gain of 1.06%. After a market pullback/bottom in October, the week after monthly options expiration 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 MACD Buy Signal which can occur anytime beginning October 1 (the first trading day of the month this year). We will email all members after the close when our seasonal buy triggers.