As September draws to a close, analysts reflect on what was anticipated to be the worst month of the year for financial markets. Contrary to expectations, it turned out to be a relatively stable month, with some indices poised to close with decent returns despite earlier predictions of negative trends.
Seasonality, defined as the predictable and recurring changes in data based on time of year, plays a significant role in market analysis. The concept is often examined within the context of broader cycles, including the presidential cycle, which occurs every four years.
In a recent analysis, a median return chart from 1990 highlights the fluctuations of each month, illustrating that the anticipated declines in September did not materialize as severely as predicted. Even in the last week of the month, while some negativity was observed, overall performance has remained resilient.
Looking ahead, October is regarded as one of the most favorable months for market performance, leading to speculation about potential movements in the fourth quarter. Historical data indicates a robust recovery phase following significant sell-offs, suggesting that October may exhibit upward trends, particularly in the early days before experiencing a slight decline toward the month’s end.
The analysis includes two models for expected returns—one calculated since 1990 and another since 1928, the latter of which focuses on specific days of the week to predict market behavior. The latter model shows an encouraging trend for early October before tapering off, while the 1990 model remains relatively unchanged.
The discourse emphasizes the complexity of market predictions, with varying methodologies yielding different seasonality results. Despite these discrepancies, the model based on data since 1928 appears to be a strong indicator of outsize performance for October.
Shifting focus to market volatility, analysts monitor the VIX index, which measures market uncertainty. Historical data shows a pattern of increased volatility in October, often associated with market crashes, yet current trends suggest muted volatility levels thus far in 2023. This discrepancy leaves open the possibility for future fluctuations, as the options market continues to respond to evolving conditions in the S&P 500.
As investors prepare for October, the insights gleaned from seasonality and volatility models offer a nuanced perspective on potential market movements, underscoring the importance of historical data in shaping expectations.
