October is a spooky month in financial markets, notorious for crashes, increased volatility, and geopolitical mischief. October in an election year brings even more confusion and uncertainty as investors try to guess which candidate’s policies will be on the table for the next four years.
However, this October has been surprisingly calm. Market volatility has decreased since October 7 and is now at near normal levels. Corporate profits are strong and stock prices are at record highs. Consumers continue to spend as the rise in inflation of the past few years declines toward historical averages.
This normalcy is something that few forecasters expected in the final weeks of the 2024 presidential campaign.
At the end of September, there were plenty of warnings about an October surprise that could confuse markets, disrupt an unprecedented election, or both. Possible issues include new signs of recession and inflation in the U.S., which could force the Federal Reserve to halt monetary easing. There were also concerns that stock prices were overvalued and that the bubble would burst. Even more worrying are cracks in the labor market, which portend a surge in layoffs and a sharp decline in spending.
So far nothing like that has happened. Job growth continues to be weaker than expected and shoppers are still spending. Oxford Economics declared on Oct. 17 that “retail sales show consumers can’t quit” after September’s retail sales report showed spending increased in most categories. did. The company’s third-quarter earnings are off to a strong start, with bullish traders pushing the stock higher.
No surprise: President Joe Biden arrives at the Chancellery in Berlin, Germany, on Friday, October 18, 2024. (AP Photo/Markus Schreiber) (ASSOCIATED PRESS)
Fundstrat’s Tom Lee said that while inflation is falling, earnings growth is increasing, meaning companies are getting ahead of inflation. “Inflation-adjusted growth is skyrocketing,” he told clients in an Oct. 17 update. “I think this is a high-quality earnings season.”
Another possible surprise for October is the escalation of the Middle East war pitting Israel against Iran and its proxies Hamas and Hezbollah. It actually happened. On October 1, Iran fired approximately 180 ballistic missiles at Israel, causing minimal damage but effectively ensuring an Israeli counterattack. Oil prices rose on concerns that Israel could attack Iranian export facilities and spark a wider oil war. It also raised the prospect that President Biden and his vice president, Democratic presidential nominee Kamala Harris, could manage the deadly Middle East conflagrations until Election Day.
Then, on October 17, Yahya Sinwar, the Hamas leader who masterminded the terrorist attack on Israel on October 7 last year that sparked the current war, died. Mr. Sinwar’s death in a skirmish with Israeli forces in the Gaza Strip will not end the war or liberate Iran. It is almost certain that Israel will retaliate for the Iranian missile attack on October 1st.
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We’re doing well, but is it enough? Democratic presidential candidate Vice President Kamala Harris speaks at a campaign rally at the Resch Expo on Thursday, October 17, 2024 in Green Bay, Wisconsin. (AP Photo/Susan Walsh) (ASSOCIATED PRESS)
However, the oil market has subsided following reports that the US has persuaded Israel not to target oil facilities. Just before the Iranian missile attack, Brent crude oil was trading at $72 per barrel. It then soared to $81 and could easily top $100 in the event of an actual attack on oil facilities in the Middle East. It’s currently sitting at around $73, which is cheaper than most of this year. Gasoline prices in the United States are about $3.20 per gallon, the lowest level since December of last year.
Economic optimism late in an election usually favors incumbents, as voters are making decisions based on whether they feel they are making progress with current policies. Harris doesn’t appear to have benefited significantly. Consumers are still recovering from the shock of inflation and are clearly nervous about foreign wars.
Gambling market favorite: Republican presidential candidate former President Donald Trump speaks to reporters upon arriving at the Detroit Metropolitan Wayne County Airport in Detroit, Friday, Oct. 18, 2024. (AP Photo/Evan Vucci) (ASSOCIATED PRESS)
Since Harris replaced Biden as the top Democratic candidate this summer, Biden and Trump have been in a dead heat, with the two candidates tied in most polls. Depending on how you look at it, Ms. Harris should overwhelm Mr. Trump. Trump’s uncontextual off-the-stump ramblings have raised concerns about his age and acuity. Still, she can’t leave.
It even shows that Trump has the upper hand in the gambling market. People betting on the election outcome currently have a 14 percentage point lead over Trump compared to the RealClearPolitics average. But it could be a fake head. The Wall Street Journal reported on October 18 that a small number of very high bets against Trump were skewing the odds in Trump’s favor on Polymarket, one of the major betting markets. It could be a deliberate effort by Trump allies to create momentum or simply create an anomaly. In any case, betting markets reflect what traders think will happen, not what is actually likely to happen.
Of course, a negative October surprise is still possible, which would give either Trump or Harris a decisive advantage. But it won’t be an economic surprise. No matter who wins, the U.S. economy will be healthy on Election Day.
Rick Newman is a senior columnist at Yahoo Finance. Follow him on X @rickjnewman.
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