What Did the October Close of the S&P 500 Mean?

• The S&P 500 closed October at 5,705.45, up 185.15 points from its July settlement. According to research, this is a good indicator of the outcome of the next US presidential election.

• However, October’s close was below the September settlement of 5,762.48, completing a long-term bearish spike reversal on the indexes monthly chart. 

• This means the long-term trend has turned down at a time when seasonal analysis tells us the index tends to move higher. 

Well, the verdict is in, at least as far as one indicator is concerned. Recall the piece I posted on August 3 that talked about how LRL Financial has connected the dots between the S&P 500 Index ($INX) and the next US presidential election. This group’s research shows that since 1984, if the index closes higher the last trading session of October than the last trading session of July, the party occupying the White House stays in the White House. On the other hand, if the index is lower for that three-month period the opposing party settles into the Oval Office. If we want to go back further than 1984, the group’s research shows “the S&P has correctly predicted the winner 87% of the time” dating back to 1928. For the record, if we go back to 2020 we see the S&P was down 1.16 points from the end of July through the end of October[i]. We all know what happened when the votes were counted. 

Fast forward to October 2024 and we saw the S&P 500 finish at 5,705.45, up 185.15 points from this past July’s settlement of 5,522.30. If history is to be believed, then Vice President Kamala Harris should win the presidential election on Tuesday, November 5. But nothing is guaranteed, no matter how much sense it makes from a market point of view. Speaking of which, let me offer a counter-argument I’ve seen of late. It equates the recent rally by Trump Media & Technology Group Corp. stock to how the election will unfold. The theory goes since the PRICE OF ONE STOCK has risen, the likelihood of its namesake taking office again has increased. I have a couple thoughts on this, and then we’ll move on to things that actually matter: 

• DJT is one stock where the S&P consists of “500 companies that have issued 503 stocks”.
  • You can do the math.
• DJT stock looks to be another venture, edited from other more graphic phrases, by the namesake to get money from donors outside of what is allowed by election laws 

Let’s see what happens next Tuesday. 

With that out of the way, let’s take an updated look at seasonal patterns for the S&P 500. Historically, the index tends to move higher from the last weekly close of September through the end of December. My seasonal study shows these numbers: 

• The 5-year index (red line) shows an average gain of 10%
• The 10-year index (blue line) shows an average gain of 6%
• The 20-year index (purple line) shows an average gain of 5%
• The 30-year index (gray line) shows an average gain of 4%

In 2024 (green line), the S&P 500 posted a low weekly close during September of 5,408 (first week). Using this as a starting point, the seasonal upside targets for a high weekly close becomes: 

• 30-year = 5,624
• 20-year = 5,678
• 10-year = 5,732
• 5-year = 5,949
• 2024 = The index has already posted a high weekly close of 5,865 (third week of October)
  • For a gain of 8.5%

This is where seasonal analysis gets fun because we have two ways of looking at a market: Time and Distance. On the time scale, the S&P 500 still has 2 months ahead when it tends to rally (the move actually extending through late February, but I’ll talk about that another time). On the distance scale, we see the index has already covered most of its average move, though there is still a bit of space to the upside according the 5-year seasonal average. 

But, Thursday’s sharp selloff by the S&P 500 provided more than last minute pre-election drama. Earlier in the month, the index posted a new all-time high of 5,878.46, extending the long-term uptrend that has been in place since the bullish spike reversal from October 2022. The closing meltdown to last month competed a bearish spike reversal as the index closed 57.03 points lower for the month meaning the long-term trend has turned down once again. This was an interesting development, but what does it tell us? 

My Blink reaction is global investors are nervous about anything and everything that could happen next week in the US. Again, investors don’t like uncertainty and that’s all that lies ahead once the closing bell rings today. It all begins with the US presidential election next Tuesday, though the results might not be known until the end of December[ii]. We could also see this in the gold market Thursday as the December contract (GCZ24) closed $51.50 lower for the day. What’s the connection? If investors were buying gold as a hedge against other market sectors, say equities, and the investments in those other market sectors were being liquidated due to uncertainty, then the long gold hedges could also be sold. 

As we set sail on November we have a situation in the S&P where its seasonals are bullish and technical are bearish. Looking at this potential conundrum we can apply a couple of my Market Rules, starting with #1: Don’t get crossways with the trend. The reason this is the first rule is because of Newton’s First Law of Motion applied to markets: A trending market will stay in that trend until acted upon by an outside force. With that outside force usually investment money. In other words, if investment money is indicating a change in direction, it’s best to follow along. The other thing to keep in mind is seasonal analysis is a guide, not a hard and fast rule. Seasonal analysis gets more interesting when contra-seasonal move begins because it tells us there is something fundamentally different about the market. And as we all know, Newsom’s Rule #6 tells us fundamentals win in the end. 

[i] I remember watching the S&P with my son that last day of October 2020, sitting on the edge of my seat waiting for the settlement.

[ii] A sign of the times: There is actually odds being given and bets being made at professional sites on how many days/weeks/months until the next US president is declared. 

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On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.