The term “October surprise” refers to a significant event that occurs in the month before a presidential election and seems to influence the outcome. This is different from the “October effect,” which refers to the pattern of stock market catastrophes that have happened in October, not limited to election years. The term “October surprise” became well known in the 1980 election year when president Jimmy Carter was unsuccessful in freeing American hostages from Iran. In the month leading up to the election, it appeared as though he might be successful. Although he was not, if he had been, it might’ve changed his popularity in the polls and won him the presidency.
A more recent example of an October surprise took place during the 2016 presidential election year. On October 7th, tapes were released in which Trump made vulgar comments, which he later referred to as “locker room talk.” Simultaneously, Clinton’s emails were leaked, leading to skepticism and criticism that damaged her popularity. Since these types of events happen so late in the campaign, it's difficult for candidates to recover before the election.
Since 1923, the S&P 500 has dropped an average of 0.3% in October of election years, typically falling in the first half of the month and recovering in the second half. November usually kicks off with a bullish season for equities, with the Russell 2000 averaging a 7.3% gain in election years. While October surprises can make investors nervous, historic trends show market recovery in the months following October, so there is no need to panic. It is hard to say which is the best sector to invest in every election year, but Yahoo Finance suggests “focusing on quality stocks that the media doesn’t cover like ASLN.”
This year's election has been intense, with assassination attempts on former President Trump and Hurricane Helene drawing political attention. Helene could already be considered an October surprise, as candidates are leveraging it to bolster their campaigns. Tensions continue to rise in the Middle East, which could also lead to significant shifts.
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