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| Missiles and Strikes: What’s the Market Situation? |
| Weekly Market Overview |
| Hi Traders, U.S. stocks experienced a sharp selloff on Tuesday, with Iran's missile attack on Israel rattling markets, sending oil prices soaring, and causing a flight to safe-haven assets. However, the Middle East crisis wasn’t the only factor weighing on Wall Street. In fact, analysts suggest the stock market's softer start to October has multiple drivers, including a strike by dockworkers along the U.S. East Coast and Gulf ports. According to economists, the strike could impact the U.S. economy by as much as $4 billion a day, adding a fresh layer of uncertainty for investors already dealing with global unrest. The strike is driving uncertainty concerning the availability of goods and their prices in the near term. This uncertainty and ongoing geopolitical concerns created a storm of negative sentiment in Tuesday's session. Flight to Safety As news of the missile strike unfolded, markets reacted swiftly. Investors sought refuge in U.S. Treasurys, gold, and other traditional safe-haven assets, while the Cboe Volatility Index (VIX) — often viewed as Wall Street’s fear gauge — jumped, though it remained just above its long-term average at 19. Market Reaction to War: What History Tells Us
Drawing from historical data, war-related shocks often lead to steep declines in the stock market. The S&P 500 has seen an average drawdown of 8.2% during major conflicts, according to LPL Financial. But there’s a crucial factor at play – whether the economy is in a recession.
When a war breaks out outside of a recession, stocks tend to recover, with an average 12-month gain of 9.2%. Conversely, if the economy is already in a downturn, the average 12-month loss can be as much as 11.5%. With the Atlanta Fed estimating 2.5% growth for Q3, the U.S. economy currently appears resilient, though the threat of volatility remains high. Strike and Oil Prices Key Factors to Watch While Iran’s missile strike stole the headlines, the port strike could have longer-term ramifications for the market. The strike’s potential to disrupt supply chains and impact consumer prices adds another level of complexity as markets weigh geopolitical and domestic risks. Oil prices, although pulling back slightly from their highs, remain a key barometer for investor sentiment. An escalation in the Middle East that threatens oil flows from the region could cause significant volatility in global markets. However, analysts remain cautiously optimistic, suggesting that investors haven’t hit the panic button just yet. Although the VIX is edging higher, it remains below 20, suggesting markets – including the crude-oil market – do not yet envision an all-out military scenario. What’s Next? For now, the stock market is navigating a delicate balance of geopolitical tensions and domestic uncertainty. While the threat of a wider Middle East conflict looms large, analysts are reminding investors that selloffs driven by geopolitical events are often buying opportunities. The key for investors in the coming days will be to monitor oil prices and the developments in the port strike, both of which could have lasting impacts on the economy and market direction.
- The Team at Altos Trading
In the next article, historically apositive month for stocks, October's performance often falters in U.S. presidential election years, creating a unique challenge for investors. Let’s see how this year compares to past election years. |
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October: Historically a Positive Month – But Not in Election Years |
| October has generally been a favorable month for the stock market, with data from LPL Financial showing that the S&P 500 typically delivers solid gains – unless it's a U.S. presidential election year. Over the past 75 years, the S&P 500 has averaged a 0.7% gain in October during non-election years, making it a relatively stable period for stocks. However, when October precedes a presidential election, the picture changes. Since 1950, the benchmark index has posted an average decline of 0.8% in such years, driven by heightened uncertainty surrounding political outcomes. There’s a bright spot when it comes to midterm election years, which have historically been better for equities. In those years, the S&P 500 has averaged a strong 3% gain during October, suggesting that market sentiment may be more favorable during the midterms. October has generally not been a scary month for stocks, with the S&P 500 generating an average return of almost 1% over longer time periods. In fact, over the past decade, October has delivered an average gain of 1.6%, with the last five years seeing an even higher average return of 2.4%. So why does October take a hit during presidential election years? According to Smith, it comes down to market uncertainty. "Markets crave certainty, and given the high degree of uncertainty in the weeks leading up to presidential (and House and Senate) elections, it's unsurprising that stocks tend to retreat and volatility increases," he said. Currently, the S&P 500 has gained 19.7% year-to-date, while the Dow Jones Industrial Average is up 11.9%, and the Nasdaq Composite has risen 19.3%, according to FactSet data. As October unfolds, investors will be closely watching whether the market continues its positive trend or if election jitters take their toll once again. |
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| Disclaimer:
The Altos Trading Alert Newsletter is published as an information service for subscribers, and it includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of the Altos Trading Alert Newsletter are not brokers or investment advisers, and do not provide investment advice or recommendations directed to any particular subscriber or in view of the particular circumstances of any particular person. Altos Trading, including its owner, does not participate in any trades issued through the alert services. Subscribers to Altos Trading or any other persons who buy, sell or hold securities should do so with caution and consult with a broker or investment adviser before doing so.
Trading securities and options involves risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade securities and options, and must meet suitability requirements. Past results are not necessarily indicative of future performance. Performance figures are based on actual recommendations. Due to the time critical nature of trading, brokerage fees, and the activity of other subscribers, there is no guarantee that subscribers will mirror the performance of the service. Performance numbers shown are based on trades subscribers could enter based on the trade alerts. Altos Trading, LLC assumes no responsibility for any losses incurred by any individual or entity as a result of trade alerts or strategies taught through courses or coaching services.
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