The uncertain environment in October, marked by the earnings season and the US presidential election, suggests that investors should prepare for increased volatility in the markets.
Markets face a final stretch of the year full of uncertainty. October, a traditionally complex month for the stock markets due to the release of corporate results, is even more challenging with the proximity of the US presidential elections and the remaining meetings of the Federal Reserve (Fed), which could adjust its monetary policy after a recent change.
This cocktail of events generates a scenario of doubts and instability, which has led to Goldman Sachs to expect a significant increase in volatility in global markets in the coming weeks.
Historically, the months of August through October have seen an average 27% increase in S&P 500 volatility over the past 96 years. While some consider the large corrections that typically occur in October to be mere coincidence, Goldman Sachs strategists disagree. Looking at data over the past 28 years, they note that stocks tend to exhibit the most volatility during the October earnings season, when the most abrupt moves of the year are seen.
On average, volatility in October has been 25% higher than in other months. Since 1928, the S&P 500 index has recorded an average volatility of 18 points in this month, compared to 15 in the rest of the year. In recent years, this phenomenon has been even more pronounced, with notable peaks in 1997, 2002, 2008, 2011 and 2022. For Goldman Sachs analysts, this pattern is no coincidence.
October and the elections: the perfect storm
October is a key month for investors and companies to adjust their performance expectations towards the end of the year, leading to increased activity and, therefore, volatility, as earnings reports are published and outlooks for the following year are offered.
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Reuters
Adding to this picture is another crucial factor: the US presidential election, which will take place on 5 November 2024. The race between Kamala Harris of the Democratic Party and Donald Trump of the Republican Party is shaping up to be one of the closest, with no clear favourite in the polls. Goldman Sachs points out that volatility tends to be mixed in election years. Although the S&P 500 tends to be less volatile in October of these years, the Nasdaq tends to show more fluctuations.
So far, analysts have not detected a clear bias in the options markets toward a specific election outcome, although they expect this trend to become clearer in the weeks leading up to the vote. With implied volatility of S&P 500 stocks at its 48th percentile over the past year, Goldman Sachs recommends that investors adopt long option strategies to capitalize on a likely increase in volatility in the near term.
Source: Ambito
I am an author and journalist who has worked in the entertainment industry for over a decade. I currently work as a news editor at a major news website, and my focus is on covering the latest trends in entertainment. I also write occasional pieces for other outlets, and have authored two books about the entertainment industry.
