U.S. stocks were rising Monday Oct. 1, because of renewed optimism surrounding trade.
But stocks would have kicked off October strong anyway, wrote LP Financial senior market strategist Ryan Detrick in a note on Monday. "Over the past 20 years, the S&P 500 Index (^GSPC) has shown a higher average return in October than in any other month," Detrick wrote. The average return for October in the past 20 years has been 2.25%. Conversely, September is a historically bad month for stocks, so it's possible October could be a rebound month for stocks that dropped too low in September.
During years in which there are mid-term elections, October gains are even larger. "This is a mid-term year and, sure enough, mid-term years have actually been quite strong for stocks," Detrick wrote. The S&P has gained since 1950 an average of 3.3% in October during mid-term election years. Stocks have just fallen once in October during a mid-term election year. October has also been the best month of the year for stocks during mid-term years, Detrick said.
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Still, investors need to watch what actually happens with the mid-term elections, as policy decisions resulting from whichever party takes majority control will influence market fundamentals. Both trade and tax policy are at stake. While Republicans would seek to keep the low-tax regime in place for both corporate and individual taxes, Democrats would likely want to increase taxes across the board.
Although some warned of volatility heading into the elections, volatility has actually been rather subdued, with the VIX (VIX) down 2.7% in the past five days. The VIX is at 11.87, far below its historical average of 19.
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