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Pre-election seasonality weakness trends played out in spades for US equities in the months of September and October. The S&P 500 Index ETF, the most widely followed and heavily traded US equity ETF, gave back 1.77% in August and lost 4.87% in September. Nonetheless, historical data trends tell us that October (late October, specifically) is responsible for more equity bottoms than any other month.
In fact, over the years, 50% of all corrections have seen their demise in October. However, just because the data highly suggests that a bull rally to close the year is imminent doesn’t mean there won’t be the usual volatility, market-moving headlines, and uncertainty. Below are 5 of the most critical factors investors should be watching into late October:
China Headline Spooks Semiconductors
Early Tuesday, the Biden administration announced the restrictions of sales of Nvidia chips to China with the goal of limiting “access to advanced semiconductors that could fuel breakthroughs in AI.” Nvidia, the Semiconductor ETF and other chip stocks like Advanced Micro Devices careened lower.
However, intra-day, the sector reinforced its “bend, don’t break” price action of late and fueled a violent rally off the lows. Because the semiconductor industry is so integral to the US economy and the stock market, investors should watch to see if these stocks can continue to build off Tuesday’s lows.
Options Expiration
Friday marks monthly options expiration. The week of options expiration is often plagued by choppy price action due to several factors. During this period, traders and investors adjust their positions and strategies related to expiring options contracts as volume soars. These adjustments lead to increased volatility and erratic price movements, and traders react to changing positions. Additionally, institutional investors and market makers often hedge to manage their exposure to options, further contributing to market choppiness.
Since the attack on Israel last week, rumors have been swirling that an Israeli ground attack is set to happen soon. However, according to CNBC, the Israeli military said, “The next stop might not be a ground incursion.” Either way, equities, the US Dollar, and gold are likely to see big moves regardless.
Small Cap Seasonality
Weakness in small-cap stocks has acted as the proverbial “pebble in the shoe” for US equities. However, historical seasonality suggests that this trend may soon end. Over the past 20 years, November has been the strongest month of the year for the iShares Russell 2000 Index ETF (IWM) and has delivered gains 80% of the time.
Bottom Line
With the summer doldrums over, equity markets are in the spotlight. End-of-year seasonality bodes well for stocks however; investors must navigate and closely monitor developments in five market areas.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: S&P 500 Index ETF, Nvidia, Semiconductor ETF, Advanced Micro Devices and Tesla
For Immediate Release
Chicago, IL – October 18, 2023 – Today, Zacks Investment Ideas feature highlights S&P 500 Index ETF (SPY - Free Report) , Nvidia (NVDA - Free Report) , Semiconductor ETF (SMH - Free Report) , Advanced Micro Devices (AMD - Free Report) and Tesla (TSLA - Free Report) .
5 Critical, Market-Moving Themes to Monitor
Pre-election seasonality weakness trends played out in spades for US equities in the months of September and October. The S&P 500 Index ETF, the most widely followed and heavily traded US equity ETF, gave back 1.77% in August and lost 4.87% in September. Nonetheless, historical data trends tell us that October (late October, specifically) is responsible for more equity bottoms than any other month.
In fact, over the years, 50% of all corrections have seen their demise in October. However, just because the data highly suggests that a bull rally to close the year is imminent doesn’t mean there won’t be the usual volatility, market-moving headlines, and uncertainty. Below are 5 of the most critical factors investors should be watching into late October:
China Headline Spooks Semiconductors
Early Tuesday, the Biden administration announced the restrictions of sales of Nvidia chips to China with the goal of limiting “access to advanced semiconductors that could fuel breakthroughs in AI.” Nvidia, the Semiconductor ETF and other chip stocks like Advanced Micro Devices careened lower.
However, intra-day, the sector reinforced its “bend, don’t break” price action of late and fueled a violent rally off the lows. Because the semiconductor industry is so integral to the US economy and the stock market, investors should watch to see if these stocks can continue to build off Tuesday’s lows.
Options Expiration
Friday marks monthly options expiration. The week of options expiration is often plagued by choppy price action due to several factors. During this period, traders and investors adjust their positions and strategies related to expiring options contracts as volume soars. These adjustments lead to increased volatility and erratic price movements, and traders react to changing positions. Additionally, institutional investors and market makers often hedge to manage their exposure to options, further contributing to market choppiness.
Earnings Season
Earnings season kicks into full gear this week. Tomorrow, highly anticipated earnings releases are due, including the latest from Tesla. You can read my Tesla EPS preview here or find a full earnings calendar here.
Geopolitical Escalations
Since the attack on Israel last week, rumors have been swirling that an Israeli ground attack is set to happen soon. However, according to CNBC, the Israeli military said, “The next stop might not be a ground incursion.” Either way, equities, the US Dollar, and gold are likely to see big moves regardless.
Small Cap Seasonality
Weakness in small-cap stocks has acted as the proverbial “pebble in the shoe” for US equities. However, historical seasonality suggests that this trend may soon end. Over the past 20 years, November has been the strongest month of the year for the iShares Russell 2000 Index ETF (IWM) and has delivered gains 80% of the time.
Bottom Line
With the summer doldrums over, equity markets are in the spotlight. End-of-year seasonality bodes well for stocks however; investors must navigate and closely monitor developments in five market areas.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.