S&P 500 Index: The Hunt for (a) Red October

Darin Newsom Barchart Wed Oct 2, 10:27AM CDT
Pumpkins & Thanksgiving - Pumpkin pile by Sebastien Lapointe via Unsplash
  • One research group has shown the S&P 500 Index to be a good indicator of US presidential elections, the focus on the three months leading up to the election.
  • In 2024, the S&P 500 index closed September at 5,762, 240 points above the July settlement of 5,522 with October one of the more seasonally bullish months, historically.
  • The continued long-term rally in the gold market indicates global investors are expecting those trying to create political change will ramp up events between now and the election.

The movie “The Hunt for Red October”[i] from 1990 starring Sean Connery, Alec Baldwin, and James Earl Jones is one of my favorite Cold War films. The movie focuses on the intrigue between the US and Russia as the Cold War combatants race to find the nuclear submarine named Red October that has been commandeered by Soviet captain Ramius in his attempted defection to the United States. The twists and turns of the movie, accentuated by stellar acting from the cast, have you on the edge of your seat the entire time.

I’ve been reminded of this movie the past two US Presidential Election cycles. What’s the connection? I found a study from LPL Financial that says, reportedly, “Since 1984, the stock market (S&P 500) has correctly predicted the winner of each US presidential election”. Furthermore, “going back to 1928, the S&P 500 has correctly predicted the winner 87% of the time”. The study is based on how the S&P 500 moves the three months leading into the early November election, meaning from the close of July through the close of October. If the S&P 500 is higher during that time frame, then the party in power stays in power. If the S&P 500 closes lower at the end of those three months, then the opposing party moves into the White House. (There is no mention of what would happen if the US ever developed a legitimate third party.) Here’s how the past two US presidential elections have played out, with an early look at 2024: 

  • 2016 (Hillary Clinton (party in power) vs. Donald Trump (opposing party))
    • The S&P 500 closed July at 2,173.60 and October at 2,126.15, down 47.45 points
    • Trump won the electoral vote 304 to 227
      • Clinton won the popular vote by roughly 2.9 million votes (2%)
      • Yet, there we were.
  • 2020 (Trump (party in power) vs. Joe Biden (opposing party))
    • The S&P 500 closed July at 3,271.12 and October at 3,269.96, down 1.16 points (speaking of being on the edge of my seat, Friday, October 30, 2020)
    • Biden won the electoral vote 306 to 232
      • Biden also won the popular vote by more than 7.0 million votes (roughly 4%)
  • 2024 (Harris (party in power) vs. you know who again (opposing party))
    • The S&P 500 closed July at 5,522.30 and settled September at 5,762.48
    • Up 240 points heading into October

Being comfortable with the political situation in the US remains a long way away. Additionally, the past two months have seen sharp early selloffs by the S&P 500 ($INX): 

  • August 2024: The index dropped more than 400 points from the July 31 settlement through the August 5 low before rallying to close the month with a gain of 126 points
  • September 2024: The index dropped 240 points from the August 30 settlement through the September 6 low before rallying to new all-times highs at the end of the month.
  • October 2024: The index lost 81 points to start the month before closing with a loss of 54 points on October 1.

Seasonally, October is a bullish month for the S&P 500 as the index shows average gains of: 

  • 5-year index (red line) ~ 4%
  • 10-year index (blue line) ~ 1%
  • 20-year index (purple line) ~ 1%
  • 30-year index (gray line) ~ 1%

With all this as background, it’s no surprise the gold market (GCY00) – THE global safe-haven market - continues to find buyers despite already rallying to new all-time highs. Global investors know the opposing party in the US and its allies (Russia, China, and their alliances BRICS, OPEC+, Hezbollah, just to name a few) will continue to ramp up global disruptions with a goal of creating political change. For starters, this group needs a red October in the S&P 500 Index, not just for the month but for the past 3 months, so global investment money should continue to flow into gold as a hedge against the expected Chaos[ii].

I grew up during the Cold War, so the past decade (at least) of a US political party embracing Russia has been dumbfounding. But that’s the way things are these days.

At the end of the movie, CIA analyst Jack Ryan told Captain Ramius, “Welcome to the New World, Captain”. In this case, though, those closing words aren’t all that comforting.

 

[i] This is one of those odd examples when I’ve seen the movie without reading the book. All these years later and I still haven’t read Tom Clancy’s 1984 novel. I need to put that on my list for the winter.

[ii] There will be some discussion over if this should be considered Chaos since we know something is going to happen. We don’t know what, and we don’t know when, but events will continue to get worse up through the US presidential election in early November. Again, we can see this in the gold market. 



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On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.