October Isn’t Just Volatile in the US
It was a brutal overnight session for stocks in Hong Kong where the Hang Seng plunged 9.4% after Chinese stocks rallied less than investors had hoped after re-opening from the six-trading session National Holiday. Last night’s decline was the largest one-day decline for the Hang Seng since the depths of the Financial Crisis in October 2008 and before that two days in October 1997. Although stocks in Hong Kong were down sharply during the session, the Hang Seng is still up over 23% from its September low.
As mentioned above, the last four times that the Hang Seng has declined more than 9% in a day occurred in October. Including these four days, eight of the eighteen days that the Hang Seng has declined by more than 9% occurred in October. So while October is the most volatile month of the year for US stocks, the same applies to Hong Kong as well!
To illustrate this another way, the chart below shows a distribution of 5% one-day drops in the Hang Seng since 1964. Of the 132 occurrences, 20 occurred in October, and the next closest month is March with just 14.
October has not only been the champion of 5%+ daily declines, but 5%+ gains as well. Throughout its history, the Hang Seng has gained 5% or more 138 times, and 23 of those occurred in October which is more than 50% greater than the next closest month (November). Overall, October has been home to 43 (15.9%) of the Hang Seng’s 270 daily moves of at least 5%.
Bespoke’s Morning Lineup – 10/8/24 – China Reopens
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“It was a grand sight but hellish in the extreme; streets, houses, trees, and everything in one grand furnace.” – Thomas Foster
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As the southeast US attempts to pick up the pieces from Hurricane Helene at the end of September, and Florida braces for the second landfall of a major hurricane in two weeks, today also marks the 153rd anniversary of the Great Chicago Fire which devastated the city over nearly three days. Ironically, the current disaster in the southeast was due to too much rain, while a primary factor behind the Chicago Fire was not enough rain. As William Bross, one of the Chicago Tribune’s owners at the time, reflected after the fire, “Under the burning sun for so many weeks, the whole city became virtually a tinderbox.” The city had been dealing with a lack of rain for months, and in the 22 days leading up to the blaze, there was only one rain event with a total of just 0.11 inches. With these types of extremes, it’s hard to find stability.
It’s still early, but there’s some stability in equity markets this morning and treasury yields have helped as the 10-year yield is unchanged and the 2-year yield is slightly lower. Crude oil is also giving up some of yesterday’s gains with a decline of nearly 2% but remains above $75. Overnight in Asia, China finally reopened for trading after the National Holiday, and the Shanghai Composite picked up right where it left off with a gain of 4.6%. However, Hong Kong was down 9.4% for its worst day since October 2008, and Japan’s Nikkei fell 1.0%. In Europe this morning, the STOXX 600 was down over 1% but has regained ground throughout the session and is now down just 0.5%.
We now have just four weeks left until Election Day and the start of the mid-term election season. Below we show the performance of the S&P 500 in the four weeks leading up to Election Day for every year since 1945. We have also included blue bars to indicate presidential election years. Overall, the S&P 500’s performance during these years has been weaker than all other years. In years when Americans vote for President, the S&P 500’s median performance in the four weeks leading up to Election Day has been a gain of 0.82% compared to a median rally of 1.89% for non-presidential election years. While median performance in non-election versus election years varies, the consistency of positive returns is identical at 68%.
While you would expect the market to be more volatile leading up to a presidential election year versus all other years, the opposite has been the case. Of the 19 presidential election years shown, the S&P 500’s maximum gain was 5.6% while its maximum decline was just 1.5%. In non-election years, however, the range has been much wider with a maximum gain of 15.6% in 1974 (and three other years when the S&P 500 rallied over 10%) and a maximum decline of 21.4% in 1987.
As we head into the final four weeks, the country looks more divided than ever regarding its preference (or who it dislikes least) for President. Based on tabulations from RealClear Politics (RCP), Harris currently holds a 2.1 percentage point lead at the national level, but in the battleground states, Trump has a modest lead. Meanwhile, in betting markets, Trump has a 3.3 percentage point lead.
Based on the Electoral Map, RCP has Trump in the lead at 219 to 215 with 104 votes still in toss-up states, while if you include the toss-up states, Trump has a 24 electoral vote lead at 281 to 257. Lastly, within the 12 battleground states, Harris holds the lead in six, Trump in five, while Pennsylvania, which is tied with Illinois for the fourth most electoral votes of any state (19) is tied. Whether your horse is Harris or Trump, there’s something in this table for everyone!
B.I.G. Tips – Analysts Turning More Bearish Ahead of Earnings Season
This content is for members onlyBespoke’s Morning Lineup – 10/7/24 – The Calm Before the Storm
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“We learn from history that we don’t learn from history!” – Desmond Tutu
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It’s a quiet morning on the economic calendar today, but things will pick up later in the week with the releases of CPI on Thursday and then PPI and Michigan Sentiment on Friday. Besides the economic data, earnings season will kick off later this week when the big banks like Blackrock (BLK), JPMorgan Chase (JPM), and Wells Fargo (WFC) report on Friday morning. Outside of the Financials, we’ll also get reports from Pepsi (PEP) tomorrow, and Delta (DAL) Thursday morning. So, enjoy the calm while it lasts. More importantly, the west coast of Florida is anxiously watching the path of Hurricane Milton which is expected to rip through the state from west to east later this week.
Last week may have been the fourth straight week of gains for the S&P 500, but the gain’s magnitude was the smallest of the last four weeks. While the week ending 9/13 saw the S&P 500 rally over 4%, every week since has seen a smaller percentage gain. Gains are still gains, though, and outside of the Russell 2000, other major US indices finished last week higher and remained at overbought levels.
At the sector level, the picture looks different. While just three sector ETFs finished last week up by more than 1%, four finished down by over 1%. Leading the way lower, Consumer Staples, Materials, and Real Estate were down more than 1.5%. On the upside, geo-political worries in the Middle East pushed the Energy sector ETF (XLE) up by close to 7%, and it was the best week for the sector since mid-October 2022. While there was a lot of dispersion in sector performance last week, one consistent across all eleven sectors has been that they are all up by double-digit percentages.
Looking at the Energy sector specifically, in addition to last week being the best week for the sector in nearly two years, it also broke the downtrend it has been in since the spring highs. The big gains for Energy may spark concerns over inflation, especially with CPI and PPI coming up this week, but at this point, the bulk of the rally in the sector can be chalked up to geopolitics. If the gains were more due to concerns over inflation and higher demand, Materials should have also rallied, and with a decline of 1.8%, it was the second worst-performing sector last week.
