October is living up to its reputation as a volatile month, since the S&P 500 has typically recorded 36% higher volatility in this month versus the average for the remaining 11 months of the year, observes chief investment strategist Sam Stovall in CFRA Research's flagship newsletter, The Outlook.
This time, with a week left in the month, the S&P 500 has already recorded 50% more days with 1% moves than the average for the entire month since WWII.
Like pulling petals from a daisy, investors have been encouraged, then disappointed, by flip-flopping expectations of future inflation readings and the likely response by the Fed, along with declining EPS growth forecasts.
As a result, in the past 17 trading days, all six one-day advances for the S&P 500 exceeded 1% — five were above 2.0% — and were soon met by extended selling. Even though investors may be well aware that returns prior to midterm elections have traditionally been volatile, they may also question whether this year’s uncertainty will lead to opportunity.
Since 1990, from October 31 of midterm election years through October 31 of the following year, the S&P 500 recorded an average 16.0% gain in price and boasted a 100% frequency of advance, rising in eight of eight periods. (This same batting average was also recorded by the S&P 500 for all post-midterm election periods since 1946.)
In addition, the “500” was accompanied by average price increases for all sizes, styles, and sectors, with the large-cap growth areas outperforming the more defensive groups.
Moreover, 96% of the 79 sub-industries in existence for at least six cycles also recorded gains. Though past performance is no guarantee of future returns, “This too shall pass” continues to be the mantra that history encourages investors to embrace for the year ahead.
Representative companies from this list of S&P 500 sub-industries with the highest post-midterm returns are: Applied Materials Inc. (AMAT), NIKE, Inc. (NKE), Trimble Inc. (TRMB), NVIDIA Corp. (NVDA), The Home Depot Inc. (HD), Cisco Systems Inc. (CSCO), Moderna Inc. (MRNA), and DENTSPLY SIRONA Inc. (XRAY).
