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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 ((SPY - Free Report) ), 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 ((NVDA - Free Report) ) chips to China with the goal of limiting “access to advanced semiconductors that could fuel breakthroughs in AI.” Nvidia, the Semiconductor ETF ((SMH - Free Report) ), and other chip stocks like Advanced Micro Devices ((AMD - Free Report) ) 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.
Image Source: Zacks Investment Research
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.
Image Source: Equity Clock
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.
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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 ((SPY - Free Report) ), 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 ((NVDA - Free Report) ) chips to China with the goal of limiting “access to advanced semiconductors that could fuel breakthroughs in AI.” Nvidia, the Semiconductor ETF ((SMH - Free Report) ), and other chip stocks like Advanced Micro Devices ((AMD - Free Report) ) 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.
Image Source: Zacks Investment Research
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 reports from Tesla ((TSLA - Free Report) ), Netflix ((NFLX - Free Report) ), and Morgan Stanley ((MS - Free Report) ). You can read my Tesla EPS preview here or find a full earnings calendar here.
Image Source: Zacks Investment Research
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.
Image Source: Equity Clock
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.