The S&P 500 (SPY) has been positive for 8 of the 9 months this year. That includes a run of 5 straight months in the plus column.
Yes, I agree that doesn’t sound right on the surface. There have been a series of pullbacks and corrections in the past few months. And that includes a rather brutal sell off to start August. But even that month ended +2.34% higher.
So will that momentum continue in October? Or is it time for stocks to take a break?
That and other key topics will be at the heart of our investment discussion today.
Market Outlook
Let me get right to the punchline.
I don’t think stocks will move higher in October. This is the perfect point to rest up before making a late year surge to new record highs.
The main reason to pause now is that I think the election will “suck all the air out of the room”. This is about as close as they get where the it will once again come down to a handful of swing states to determine the outcome.
I am not necessarily predicting any kind of nasty sell off in October either. More of consolidation under the highs with a rolling correction.
The latter point is that sector rotation will lead to each group getting taken behind the wood shed and beaten down. But because not all happening at the same time, then the market averages will have fairly muted results.
This is fairly common behavior after making new highs as investors look to take some profits off the table. The trick is to not read too much into all the volatility and noise.
Today’s big loser could be tomorrow’s big winner. And vice versa.
In this environment you are best served with an ample dose of patience as your stocks that fall the most will bounce the most.
But also consider having a list of your favorite stocks you wouldn’t mind buying 5-10% cheaper on any kind of extended sell off.
Now let’s shift to the positive part of this conversation. We are still very much in the midst of a long term bull market. Throw in the benefits from lower rates and its hard to be truly negative on stocks.
Once election results are in hand, I expect the typical bull run for stocks. That’s because the reason to press pause in October is the uncertainty over the election outcome. Once that certainty arrives, then investors will likely hit the buy button in unison as they have after the last several elections.
Now sprinkle in the seasons good tidings from the typical Santa Claus rally and we have a real shot to hit 6,000 on the S&P 500 before we flip the calendar to 2025. That’s just a smidge over 4% above the current highs and not a tall order.
I will also go on record saying that the Russell 2000 filled with small caps will likely rise 8% or more in that stretch. That’s because 4 years of dominance by the large caps is not built to last. So small caps should be playing catch up.
Gladly our POWR Ratings model has a small cap bias. So that should point you towards the best looking stocks to own in the months ahead. My favorite of which are shared in the next section...
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SPY shares were trading at $568.46 per share on Friday morning, up $0.64 (+0.11%). Year-to-date, SPY has gained 20.73%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
Will the Stock Market Winning Streak End in October? StockNews.com
