Omor Ibne Ehsan
5 min read
Quick Read
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Jim Reid found October 27 historically marks the S&P 500’s autumn low, and SPY gained 0.57% as small caps surged over 1%.
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RSP hedges megacap concentration risk. Microsoft alone holds nearly 5% of SPY, meaning one bad earnings report can erase seasonal gains.
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The S&P 500 has averaged +17% returns in the year after midterm elections, finishing higher in 17 of the last 19 such years.
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Deutsche Bank’s Global Head of Macro Research, Jim Reid, sent clients a note on October 27 that said: “Today, 27 October, is historically when the final dip of a typical year bottoms out.” Stocks rose that day. The S&P 500 gained 0.60% to 7,722.60, and the State Street SPDR S&P 500 ETF Trust (NYSEARCA:SPY) added 0.57% to close at 769.71.
Growth and small-cap stocks led the gain. The Nasdaq Composite rose 1.18%, the Russell 2000 gained 1.16%, and the SOX semiconductor index jumped 3.60%, while the Dow edged up just 0.03%.
A calendar average is a thin reason on its own to put more money in, though. The Fed announces its decision on October 28. Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) report after the close that evening, Amazon (NASDAQ:AMZN) follows on October 29, and the midterm elections are on November 3.
How Deutsche Bank Landed on October 27
Reid’s research tracks the S&P 500’s average path through the calendar year going back to 1928, with midterm and non-midterm years graphed separately. In a typical year, the index peaks around September 2 and hits a low near September 30. It then rebounds and makes one last dip, bottoming in late October.
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Midterm years tend to peak in late April and slip into an early-October low as uncertainty about the election builds. Reid found that the S&P 500 was higher over the three months from early October in 21 of the last 23 midterm years.
