Election-Year Octobers Are Often Bad for Stocks

Hurricane Sandy, the 2016 email scandal, and COVID hitting the White House all occurred in October. Other odd events have happened in October throughout the years too.

Election-Year Octobers Are Often Bad for Stocks

So, this October could be a strange one.

Unfortunately, election-year Octobers are often bad for stocks too. In fact, since 1928, election year Octobers have seen the S&P 500 drop 0.3%, on average:

Here’s something perhaps even weirder…when you split up October performance into halves, one half stands out from the other. Despite Halloween being at the end of October, the spooky times for stocks occur in the first half of the month.

In analyzing election-year Octobers since 1988, the first half sees the S&P 500 (using the exchange-traded fund SPDR S&P 500 ETF Trust (SPY) as a proxy) drag 2.8% before firming up in the back half. This anomaly also exists with the tech-heavy Nasdaq 100 (using the Invesco QQQ Trust (QQQ) ETF as a proxy) and the small-cap Russell 2000 (using the iShares Russell 2000 ETF (IWM) as a proxy). But the Novembers and Decembers that follow are often good:

A Heavy Appetite for Smaller Companies

In other words, October dips tee up big late-year rips…especially for small-cap stocks. As the chart above shows, in November and December of election years, the Russell 2000 averages a 7.3% gain.

That could play out this year too as recent money flows show a heavy appetite for smaller companies (81% of buys targeting market caps below $50 billion):

Off-the-run small- and mid-cap stocks have been beaming all year in MAPsignals data. When you dive below the surface, there are all sorts of single stock stories working.

One is Allison Transmission Holdings, Inc. (ALSN). The heavy equipment maker has had healthy institutional support alongside favorable forward earnings growth for a while now.

It’s no surprise ALSN made MAPsignals’ rare Top 20 list six times this year so far. These sorts of recurring inflows power stocks higher.

Expect An October Surprise to Jitter Markets

Election mudslinging is well underway. Just don’t let anything spook you out of stocks.

See, October surprises date back to the 1800s. Heading into presidential elections, unexpected events routinely surface out of the blue.

So, expect an October surprise to jitter markets this year. Strap on the helmet and buy any pre-election dip that typically emerges in the first half of October.

History shows that early October weakness is met with back-end October stabilization. Furthermore, November kicks off bullish season for equities.

Thus, it’s wise to focus on quality stocks the media doesn’t cover (like ALSN). That’s where institutional investors find alpha.

Of course, finding them is easier with a MAP. The MAPsignals process can show you where the Big Money flows!

If you’re a serious investor, Registered Investment Advisor (RIA), or a money manager looking for hedge-fund quality research, get started with a MAP PRO subscription today.

Disclosure: the author holds no positions in ALSN at the time of publication.