“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain
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In the United States we are now within one month of a major election. The stock market’s behavior in the October before a U.S. presidential election can vary significantly based on several factors, but there are a few general trends and patterns that have been observed historically:
1. Uncertainty Drives Volatility
The uncertainty around who will win the election and how their policies might impact the economy often leads to higher volatility in the stock market. Investors may become more cautious or reactive to political news, especially if the race is particularly close or contentious.
2. Market Sentiment Tied to Election Outcomes
Historically, the stock market tends to react favorably to an incumbent candidate or party that is perceived as business-friendly. Conversely, if a challenger who is seen as favoring more regulation or less market-friendly policies gains traction, the market might react with nervousness, leading to potential sell-offs.
3. October Effect
There’s a market phenomenon known as the “October Effect,” (Please see the Investment Section of this publication) where investors have a fear of market crashes during October due to some historically significant crashes (e.g., the 1929 crash and Black Monday in 1987). While this is more of a psychological expectation, it sometimes influences behavior leading up to elections.
4. Sector-Specific Reactions
Different sectors of the stock market may react differently based on campaign rhetoric. For example, healthcare, defense, and renewable energy stocks might respond sharply to candidates’ positions on relevant policies. If a candidate advocates for major changes in these areas, stocks in those sectors can experience notable shifts.
5. “Election Year Effect”
While the entire year leading up to an election can impact stock performance, markets tend to prefer stability. Historically, markets have shown a tendency to perform better when the party in power is expected to remain in control, but this pattern isn’t guaranteed.
Ultimately, the stock market’s performance in October prior to a presidential election is influenced by economic conditions, global events, and investor psychology, in addition to the specific dynamics of the election itself. Markets tend to reflect a mix of anticipation, speculation, and reaction to potential policy shifts depending on who may win. So, hold on to your hats, we are likely to be in for an interesting last quarter of 2024.
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