In financial markets, October is a spooky month, notorious for crashes, increased volatility and geopolitical skullduggery. Election year Octobers are even more tumultuous, as uncertainty rises and investors try to guess which candidate’s policies they’ll be dealing with for the next four years.
This October, however, is turning out to be surprisingly benign. Market volatility has dropped since Oct. 7 and is now at roughly normal levels. Corporate earnings are coming in strong, pushing stocks to record highs. Consumers keep spending as the elevated inflation of the last few years drops toward historical averages.
This normalness was about the last thing forecasters expected in the final few weeks of the 2024 presidential campaign.
At the end of September, there were warnings galore about an October surprise that could disrupt markets, roil an already unprecedented election, or both. Some possible problems included new signs of a US recession or inflation, which could force the Federal Reserve to halt its monetary easing. There were also worries about stocks being overvalued and a bubble that might pop. More worries: cracks in the labor market that might presage a surge in layoffs and a sharp pullback in spending.
None of that has happened so far. Job growth continues to trounce forecasts, and shoppers are still spending. “Retail sales show there is no quit in the consumer,” Oxford Economics declared on Oct. 17 after the September retail sales report showed spending up in most categories. Third quarter earnings are off to a strong start, with bullish traders pushing stocks higher.
Tom Lee of Fundstrat pointed out that revenue growth is up while inflation is down, which means businesses are getting ahead of inflation. “Growth adjusted for inflation is surging,” he told clients during an Oct. 17 update. “I think it’s a high-quality earnings season.”
Another possible October surprise was an escalation in the Middle East war pitting Israel against Iran and its proxies, Hamas and Hezbollah. That actually did happen. On Oct. 1, Iran fired roughly 180 ballistic missiles at Israel, causing minimal damage but essentially assuring Israel would strike back. Oil prices rose on worries that Israel could hit Iranian export facilities and trigger a broader oil war. That also raised the prospect that President Biden and his vice president, Democratic presidential nominee Kamala Harris, could be managing a dreadful Middle East conflagration right through Election Day.
Then came the Oct. 17 death of Hamas leader Yahya Sinwar, who masterminded last year’s Oct. 7 terrorist attack on Israel, which set in motion the current war. Sinwar’s death, in a Gaza skirmish with Israeli troops, doesn’t end the war or let Iran off hook. Israel is still nearly certain to avenge Iran’s Oct. 1 missile attack.
But oil markets have calmed down following reports that the United States persuaded Israel not to target oil facilities. Brent crude traded at $72 per barrel right before the Iranian missile attack. Afterward, it jumped to $81 — and could easily have gone above $100 if there were any actual attacks on Middle East oil facilities. It has now settled back to around $73, which is lower than it has been for most of the year. US gasoline prices are around $3.20 per gallon, the lowest level since last December.
A sanguine economy in the late innings of an election normally benefits the incumbent, since voters are passing judgments on whether they feel they’re getting ahead under current policies. Harris does not seem to be benefiting in any pronounced way. Consumers are still recovering from the shock of inflation and clearly jittery about foreign wars.
Since Harris replaced Biden atop the Democratic ticket this summer, she turned Biden’s deficit against Trump into a dead heat, with most polls showing the candidates essentially tied. By some measures, Harris should be trouncing Trump, whose disconnected stump ramblings have raised concerns about his age and acuity. Yet she can’t pull away.
Betting markets even show that Trump has the upper hand. People gambling on election outcomes now give Trump a 14-percentage-point margin in the RealClearPolitics better average. But that could be a head fake. The Wall Street Journal reported on Oct. 18 that on one of the leading betting markets, Polymarket, a small number of very large bets on Trump are skewing the odds in his favor. That could be a deliberate effort by Trump allies to create the appearance of momentum or just an anomaly. Whatever the case, betting markets reflect what traders think is going to happen, not what is actually likely to happen.
A negative October surprise could still happen, of course, providing a decisive advantage to either Trump or Harris. But it won’t be an economic surprise. The US economy will be sound on Election Day, no matter who wins.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on X at @rickjnewman.
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