Welcome to the October edition of our Stock Market Trends and Updates. This month, we examine the latest financial developments and explore a market shaped by a dynamic blend of critical influences.

In October, investor concerns continued to evolve, reflecting fluctuations in rising interest rates, slowing economic growth, and persistent inflation. These factors are a strong reminder that the global financial realm remains dynamic and unpredictable.

Whether you’re a seasoned investor or just beginning your financial journey, our goal is to provide you with valuable insights that will help you gain a clearer and more informed understanding of the current global stock market. Continue reading as we discuss October’s trends, shifts, and challenges, uncovering the complexities that shape today’s market.

The October Effect a Myth or a Market Reality?

Is the October Effect just another financial superstition? While it’s true that some of the most significant market crashes have occurred in October, data suggests that there’s more to the story. 

The October Effect refers to the idea that stock prices tend to plummet in October. This comes from the month’s association with several historical market crashes, including the Panic of 1907 and the Stock Market Crash 1929. However, financial analyst studies, like Yardeni Research, portray a different picture. Research of the S&P 500’s performance since 1928 reveals that October has actually shown more favourable returns. With a slight gain in the average performance for the month, the notion is being debunked. 

Nevertheless, October does have a reputation for heightened volatility. While stock prices may not always fall, swings are more common. According to CFRA Research, the market tends to be about 35% more volatile in October than during other months. While you may not need to fear an automatic October crash, you should be prepared for a potentially challenging time. 

Closer Look at Market Divergences

Despite the S&P 500 reaching a new all-time high, a closer look at underlying indicators reveals potential concerns for bullish investors. Although the price trend may appear strong, a negative divergence is unfolding. While the index climbs upward, the relative strength indicator (RSI) moves in the opposite direction. This disconnect between price action and momentum signals a potential weakening in market strength. Although this divergence alone might not signal an immediate market top, it does raise a caution that can’t be ignored.

Another critical concern is the percentage of S&P stocks in bullish point-and-figure patterns. Readings reported 78%, a decline from over 80% the previous week. This drop suggests that fewer individual stocks support the overall index’s rise, implying a lack of participation across the broad. Similarly, the percentage of new highs versus new lows also dropped from prior reports, indicating that fewer stocks are making new highs despite the S&P’s gains. This diminishing participation compromises the sustainability of the market’s upward trajectory. 

Further adding to the mixed signals is the performance of the Nasdaq 100, which failed to reach a new high when the S&P 500 did. Big-cap tech and social media stocks, which led the market earlier this year, have also lost momentum. Key stocks like Nvidia and Tesla are no longer pushing the index higher as they did earlier in 2024. This combination of weakening leadership and declining advance/decline issues on the New York Stock Exchange brings to attention essential questions about the durability of the recent market highs.

A Global Perspective on Market Impacts

The stock market faces significant challenges due to ongoing geopolitical tensions stemming from various global conflicts. 

In the Middle East, rising tensions are noticeably impacting Gulf stock markets. With Hezbollah launching rockets into Israeli cities like Haifa and Tiberias, fears are settling in that the Gaza war could escalate into a broader regional conflict. This uncertainty has weighed heavily on most major Gulf markets; Dubai’s main index fell by 0.5%, with severe declines in sectors such as public parking operations and budget airlines. Abu Dhabi and Qatar also experienced dips as investors reacted to potential instability.

Conversely, Saudi Arabia’s benchmark index gained 1.2%, defying the regional trend. After three consecutive losses, a surge in aluminium products and a successful debut from a local perfumer company contributed to this rebound. However, oil prices—typically a stabilising force for Gulf markets—dipped amid concerns of oversupply and weakening demand. As the conflict unfolds, caution remains about how geopolitical risks could impact the oil-rich Gulf region. 

Adding to these challenges, recent global trade reports highlight growing concerns as geopolitical tensions and economic difficulties weigh on financial markets. The International Monetary Fund has cautioned against sluggish economic growth from trade disputes and inflationary pressures. Major economies like the U.S., China, and the European Union show slowing activity in their manufacturing sectors. Fluctuating energy prices, spurred by uncertainties in the Middle East, further exacerbate market volatility.

The ongoing conflict between Russia and Ukraine has significant implications for geopolitical stability and economic conditions worldwide. Since Russia’s full-scale invasion began on February 24, 2022, the war has led to extensive military actions and humanitarian crises across Ukraine. Major cities have been targeted, resulting in significant civilian casualties and destruction of infrastructure. As the conflict continues, it has drawn international condemnation and led to severe sanctions against Russia from Western nations. The fighting has also exacerbated global food shortages due to the blockade of Ukrainian ports. Despite intermittent efforts at ceasefires and negotiations, the situation continues, with ongoing battles and territorial changes in regions like Donetsk and Luhansk.

Additionally, tensions between China and Taiwan add to the strain on global markets. The New York Times reports that worries over China’s potential military actions toward Taiwan disrupt global trade flows, complicating an already tense economic environment. This situation creates a cautious outlook in key sectors such as technology, where Taiwan plays a critical role in semiconductor manufacturing. Any disruptions here could have far-reaching implications for global supply chains.

As conflicts converge with other uncertainties—such as fluctuating oil prices and shifting trade alliances—investors navigate an increasingly complex and volatile market landscape.

Final thoughts

As we navigate the intricacies of the global stock market in October, investors are confronted with a landscape characterised by increasing uncertainties. The markets’ ever-changing dynamics, influenced by factors like interest rates, economic growth, and inflation, create a backdrop for potentially volatile times ahead.

As reported by MarketWatch, the performance of stocks has varied significantly depending on the current administration. Here’s How Stocks Have Performed Under Biden and Harris vs. Under Trump. Additionally, with the bull market now two years old, it’s worth understanding why fewer anticipated rate cuts are unlikely to rattle investor confidence. 

While the markets may experience sharp swings and uncertainties, it’s essential to remember that these dynamics are inherent to the investment landscape. Staying well-informed, maintaining a diversified portfolio, and adopting a long-term perspective can help investors weather the storm and seize opportunities that arise during these challenging times.

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