Investing.com — As September 2024 ends on a bullish note with gains in the major indices, many investors are turning their attention to the historically volatile month of October.
The market is showing signs of optimism, but the question remains: will the gains from ‘Sweet September’ turn into ‘October pains’?
September, traditionally one of the weakest months of the year for the markets, exceeded expectations in 2024.
The , , and NASDAQ (NASDAQ:) posted gains despite the usual post-Labor Day selling pressure.
As of September 25, the DJIA was up 0.8% for the month, while both the S&P 500 and NASDAQ followed suit with positive momentum, according to a newsletter from the Stock Trader’s Almanac.
This bullish performance may be due to the Federal Reserve’s 50 basis point rate cut.
The rate cut provided a tailwind for equities, boosting investor confidence even as some parts of the market lagged, such as small-cap stocks, which struggled to post sustainable gains.
October is known for its volatility, often marked by sharp declines and even crashes, especially in election years.
Historical data shows October to be the worst month for election year performance for the DJIA, S&P 500 and NASDAQ, the newsletter said.
The , an index of small-cap stocks, also tends to underperform in October, with average election-year losses ranging from 0.9% for the S&P 500 to 2.4% for the Russell 2000.
However, in recent decades, October has not been unequivocally negative. In fact, over the past 21 years, October has been the fourth best month for the DJIA, S&P 500 and NASDAQ, and the sixth best month for the Russell 2000.
The economic climate towards October remains cautiously optimistic. Second-quarter GDP growth met expectations at 3%, while the Atlanta Fed’s GDPNow model predicts 2.9% growth for the third quarter.
Inflation continues to decline, but remains above the Fed’s target of 2%. Corporate profits have largely exceeded expectations, and employment figures, while softer, remain relatively stable.
The Fed’s recent rate cut marks the start of a new easing cycle, which has historically been bullish for markets.
However, concerns remain that aggressive interest rate cuts – more than 2% per year – could signal worsening economic conditions and lead to market declines.
“However, should the Fed continue to cut aggressively at its next two meetings, that would be a concern,” the newsletter said.
On a technical level, the DJIA and S&P 500 have broken to new all-time highs, but the NASDAQ has not yet followed suit and small-cap stocks remain weak.
Market breadth indicators suggest that while many stocks are moving higher, the gains are not evenly distributed, with technology stocks leading the way.
An important technical signal to keep an eye on is the Seasonal Moving Average Convergence Divergence Buy Signal, which kicks off on October 1.
If the market consolidates recent gains, a more favorable entry point for buying could emerge, paving the way for a possible continuation of the rally later in the year.
The 2024 US elections loom large over the markets. Historically, the market has tended to stabilize once the election is over and a clear outcome has been determined.
However, the current political landscape, with concerns about contentious elections or disruptions, could increase October’s volatility.
