Do Monday’s stock market gains signal a positive direction for the market?
- October 1 marked the beginning of quarter 4.
- The stock market rose 2.5% on Monday from its low point on Friday afternoon, following a weeks-long negative spike.
- Analysts are uncertain about how the stock market is going to react this month to multiple ongoing forces pulling it in different directions.
- Midterm elections though tend to coincide with market improvements.
- “October’s track record may offer some comfort as it has been a turnaround month,” says MarketWatch.
- Other analysts are unconvinced though, citing September’s declining market and other negative market indicators to suggest that such positive market predictions are only justified in more normalized market situations.
Why it’s important
October tends to mark the beginning of uptake in the market, as seasonal spending begins to increase. The market saw some evidence of this on Monday with a significant uptake in the Dow Jones Industrial Average. The upcoming midterm elections may also boost the market as has been the historical trend.
As we previously reported, Dow Jones dropped 5.8% following the Federal Reserve’s decision to hike interest rates. It has precipitously dropped 13.6% since August 16.
“This is just such an atypical period for so many reasons. A lot of mutual funds have their fiscal year-end in October, so there tends to be a lot of buying and selling to manage tax losses. That’s kind of something that we’re going through and you have to be very sensitive to how you manage all of that,” says Abrdn head Ralph Bassett.
“‘Twelve post-WWII bear markets have ended in October: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002 and 2011 (S&P 500 declined 19.4%),’ wrote Jeff Hirsch, editor of the Stock Trader’s Almanac, in a note on Thursday. ‘Seven of these years were midterm bottoms. Of course, 2022 is also a midterm election year, with congressional elections coming up on Nov. 8.’ According to Hirsch, Octobers in the midterm election years are ‘downright stellar’ and usually where the ‘sweet spot’ of the four-year presidential election cycle begins,” says MarketWatch.