October Stock Market Events: The Panic of 1907, Crash of 1929, Black Monday 1987
October is also notable for this Key reason: the performance of Standard & Poor’s 500-stock index from 31 July to 31 October has a way of predicting the Winner of the Presidential election.
Tte pattern is solid, as shown in this chart by Sam Stovall, equity strategist for S&P Global Market Intelligence.
Should the S&P 500 record a positive return from 31 July to 31 October, it signals the re-election of the party in power, while a decline suggests replacement.
The S&P ended September below its July close, so the election results are at the mercy of the market’s October performance.
There were just 2 times the pattern did not hold, in Y’s 1968 and 1980, when influential 3rd-party candidates were in Presidential race, including George Wallace, who took about 14% of the popular vote in Y 1968.
The pattern also failed in Y 1956, which Mr. Stovall says could be attributed to geopolitical events putting the markets on edge. That was the year of the Suez Crisis and the Hungarian Uprising.
The stock market now as vulnerable to outside shocks because it is “top-heavy,” with a P/E ratio of 25.3X for the trailing 12 months. The last, and only other, time there was a higher market P/E was during the dot.com bubble, when it was almost 32X.
Notably, November and December of Presidential election years the stock market is typically up, regardless of who wins.
If the incumbent’s party is re-elected, the market goes up 1.7%, on average, and rises in price 70% of the time. If the incumbent party loses, the market rises 2.3% and increases in price 75% of the time.
Little comfort for the losers.
Have a terrific week.