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S&P 500 Index: The Hunt for (a) Red October
The movie “The Hunt for Red October”[i] from 1990 starring Sean Connery, Alec Baldwin, and James Earl Jones is one of my favorite Cold War films. The movie focuses on the intrigue between the US and Russia as the Cold War combatants race to find the nuclear submarine named Red October that has been commandeered by Soviet captain Ramius in his attempted defection to the United States. The twists and turns of the movie, accentuated by stellar acting from the cast, have you on the edge of your seat the entire time. I’ve been reminded of this movie the past two US Presidential Election cycles. What’s the connection? I found a study from LPL Financial that says, reportedly, “Since 1984, the stock market (S&P 500) has correctly predicted the winner of each US presidential election”. Furthermore, “going back to 1928, the S&P 500 has correctly predicted the winner 87% of the time”. The study is based on how the S&P 500 moves the three months leading into the early November election, meaning from the close of July through the close of October. If the S&P 500 is higher during that time frame, then the party in power stays in power. If the S&P 500 closes lower at the end of those three months, then the opposing party moves into the White House. (There is no mention of what would happen if the US ever developed a legitimate third party.) Here’s how the past two US presidential elections have played out, with an early look at 2024:
Being comfortable with the political situation in the US remains a long way away. Additionally, the past two months have seen sharp early selloffs by the S&P 500 ($INX):
Seasonally, October is a bullish month for the S&P 500 as the index shows average gains of:
With all this as background, it’s no surprise the gold market (GCY00) – THE global safe-haven market - continues to find buyers despite already rallying to new all-time highs. Global investors know the opposing party in the US and its allies (Russia, China, and their alliances BRICS, OPEC+, Hezbollah, just to name a few) will continue to ramp up global disruptions with a goal of creating political change. For starters, this group needs a red October in the S&P 500 Index, not just for the month but for the past 3 months, so global investment money should continue to flow into gold as a hedge against the expected Chaos[ii]. I grew up during the Cold War, so the past decade (at least) of a US political party embracing Russia has been dumbfounding. But that’s the way things are these days. At the end of the movie, CIA analyst Jack Ryan told Captain Ramius, “Welcome to the New World, Captain”. In this case, though, those closing words aren’t all that comforting.
[i] This is one of those odd examples when I’ve seen the movie without reading the book. All these years later and I still haven’t read Tom Clancy’s 1984 novel. I need to put that on my list for the winter. [ii] There will be some discussion over if this should be considered Chaos since we know something is going to happen. We don’t know what, and we don’t know when, but events will continue to get worse up through the US presidential election in early November. Again, we can see this in the gold market.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here. |
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