After a scary October filled with myriad woes like rising interest rates, Italy’s political turbulence, Saudi tensions, tech sell-off, escalating U.S.-China trade war and uncertainty regarding mid-term election, November is expected to be a good month for Wall Street, leading to a strong rebound in U.S. stocks.
This is because, historically, November marks the start of the best six months for the Dow Jones and the S&P 500, and the best eight-month period for the Nasdaq, according to Almanac, citing “fourth-quarter cash inflows from institutions.” Additionally, November has been the third best month for the Dow since 1950 and the Nasdaq since 1971. The month has also been the second best for the S&P 500 for nearly 70 years and the small-capitalization Russell 2000 Index since 1979.
Per Dow Jones Data Group, Dow Jones returned 1.44% in November on average based on data going back to 1970 with 33 out of 48 Novembers ending up, or 68.75% of the times. Nasdaq returned an average of 1.62% based on data going back to 1971 with 32 out of 47 sessions ending higher, or 68.08% of the times. S&P 500 S&P has gained 1.32% on average, rising in 33 out of 48, or 68.75% of the times, in Novembers since 1970.
The bullish picture for November is backed by strong earnings and booming growth. Total earnings for the 313 S&P 500 members that have reported results so far are up 22.7% from the same period last year on 8.4% higher revenues, with 78% beating EPS estimates and 62.6% beating revenue estimates. Though earnings and revenue growth pace is still very strong, it has started decelerating from the first half’s elevated level with Q3 revenue beat being the lowest since the fourth quarter of 2016. Additionally, a slew of upbeat economic data on the back of consumer confidence and GDP growth reflects strengthening economy.
Further, mid-term election will add to the strength. History suggests 100% chance of post mid-term election rally. According to the Marketwatch article, markets tend to rally near the election, when the results are more predictable, and continue to move upward after the votes are tallied. In fact, since 1950, the average one-year return following a midterm election is 15%, more than double the average return in all other years over the same timeframe. In the years Democrats gained seats in Congress, markets gained 14.4% for the next 12 months. In the years Republicans gained seats, the market rallied 11% for the next 12 months. This suggests that whichever party comes in, market tends to rally.
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