October Surprises in Presidential Elections
October Surprises in Presidential Elections
Presidential elections often come with their fair share of drama, and sometimes a well-timed “October Surprise” can sway the outcome in unexpected ways. These surprises refer to impactful, last-minute events or revelations that influence voters in the final weeks before Election Day. Take, for example, the 1880 election: a fake letter claimed Republican candidate James Garfield supported Chinese immigration, which almost derailed his candidacy. Fast forward to 1912, and just days before the election, President Taft’s vice president passed away, casting a shadow over Taft’s chances, which ultimately helped Woodrow Wilson clinch the victory.
Not all October Surprises are homegrown; international events can also play a role. In October 1964, the sudden removal of Soviet leader Nikita Khrushchev contributed to Lyndon B. Johnson’s success as he secured his inherited presidency. Similarly, in 1980, Iran delayed the release of American hostages, which some believe helped boost Ronald Reagan’s appeal over incumbent Jimmy Carter. More recently, the FBI’s late-October announcement in 2016 regarding the ongoing investigation into Hillary Clinton’s emails was thought to influence the close race, coinciding with a shift toward Donald Trump.
In 2024, the political landscape saw a rare calm without a notable October Surprise, but the financial markets experienced their own unexpected shifts. What seemed like promising stock market gains for October fizzled in the last two days of trading, as AI investments led to a wave of profit-taking. This decline was partially due to higher-than-expected spending from tech giants like Meta, Alphabet, and Microsoft, whose ambitious plans for AI investments caught investors off guard. Rising interest rates further weighed on investor sentiment, sparking concerns about a potential delay in housing market recovery.
Economic Overview: Steady GDP and Mixed Signals
The U.S. economy continued its upward trend through the third quarter of 2024, showing resilience in the face of various challenges. Gross Domestic Product (GDP) grew at an annual rate of 2.8%, slightly below the anticipated 3.0% but still a solid performance considering mid-year forecasts had been even lower. Consumer spending, particularly on durable goods, played a significant role in this growth. Federal government spending, especially defense, also provided a boost. Meanwhile, rising imports, which reduce GDP calculations, slightly offset these gains.
The economy displayed stability but with some mixed indicators. Jobs and wages are still growing, though at a slower rate. September saw the addition of only 12,000 jobs, a figure attributed to disruptions like the Boeing strike and significant storms in the Southeast. Unemployment ticked down to 4.1% in September, signaling stability in the job market despite slower job creation.
The consumer sector showed resilience with retail sales increasing by 0.4% in September, exceeding expectations. However, high financing costs and sticker shock impacted vehicle sales, while lower gas prices kept fuel spending in check. As for housing, existing home sales fell to a 14-year low in September, reflecting continued affordability challenges. In contrast, new home sales saw an uptick as builders focused on entry-level homes, aiming to address the demand for affordable housing.
Corporate Earnings and Market Reactions
As for corporate performance, third-quarter earnings largely met expectations, although they fell short of the exceptional second-quarter results. Despite moderate earnings growth, investor interest remains high, with S&P 500 companies expected to achieve high single-digit earnings growth for 2024. Stocks showed resilience, bolstered by strong GDP figures and steady earnings forecasts, though investor caution lingered around potential inflation or interest rate increases that could elevate valuations.
The stock market, which had reached new highs earlier in October, experienced a sharp decline in the last days of the month as investors cashed out gains from high-performing AI stocks. Yet overall, the S&P 500 and Nasdaq remained up around 21.5% and 22.2% year-to-date, respectively, reflecting steady interest in growth sectors, especially tech. Small caps, which had lagged earlier in the year, made strides as investors shifted focus away from large-cap tech stocks. The Dow Jones Industrial Average has also gained around 13% in 2024, closing the gap with the broader market indices.
Sector Trends and Investment Shifts
In 2024, sector performance revealed intriguing shifts in investor priorities. Defensive and high-income sectors such as Utilities and Real Estate performed well for much of the year, bolstered by the anticipation of lower interest rates. As October began, however, rising interest rates prompted investors to reevaluate these sectors, leading to declines in Healthcare, Utilities, Consumer Staples, and Real Estate.
Despite these challenges, Consumer Discretionary showed unexpected strength, buoyed by the housing and automotive segments. Growth sectors remained strong throughout the year, although many investors pivoted toward cyclical and defensive stocks in anticipation of more favorable interest rates. This diversification of investment is a positive sign for market stability, as it indicates interest in previously underperforming sectors, which may benefit from a potential rate-cutting cycle in the future.
Looking Ahead: Market Outlook and Key Risks
As the year draws to a close, many investors remain cautiously optimistic. Despite high stock prices, the underlying fundamentals of GDP growth and steady earnings support the case for continued market strength. Key risks to watch include the possibility of inflation or interest rate hikes, either of which could place pressure on valuations.
With interest in AI stocks moderating, some investors are reallocating these gains into sectors with growth potential in a shifting rate environment. This rebalancing, combined with strong fundamentals, could drive a positive finish to 2024, echoing the post-election rallies seen in recent years. Investors are hoping that a similar rally will cap off what has already been a notable year for stocks.