A OCTOBER, EFFECTIVELY HOW HAVE THE FINANCIAL MARKETS PERFORMED IN THE TENTH MONTH? BY JIM REBER, PRESIDENT AND CEO, ICBA SECURITIES As we embark on the fourth quarter of 2024, there are a lot of wild cards in the community banking deck that could be dealt in the very near future: national elections, expiring tax cuts, commercial real estate and geopolitics, just to name a few. Let’s quickly recap just the previous nine months of 2024: • The 10-year treasury note’s yield — which ended 2023 well below 4% — quickly ran up to 4.70% before more than retracing itself by the start of August. • The bond market’s expectation of aggressive rate cutting by the Federal Reserve was quickly proven wrong. At the start of the year, fully seven rate cuts for the year were in the Fed Funds Futures numbers. It turns out there were none until September. Currently, there are a total of four cuts in the numbers for 2024. However, this can change quickly! • By and large, equity markets have done pretty well, especially considering that we were supposed to be in a recession by now. All the major indices had positive returns through August, though that too could change before year-end. RECENT HISTORY October has a reputation of a month that should be approached with extreme caution. If you have memories of the aughts, the start of the Great Recession in 2008 contained several watershed events in October of that year. The sound bite “Red October” appeared in print early and often, and in fact, the S&P 500 index lost 16.9% in that one month. Those with grey (or no) hair who were in the financial circles in 1987 still have Black Monday, Oct. 19, etched indelibly in their memories. That date remains the largest one-day meltdown in history, as the Dow Jones Industrial Average dropped 22.6% in that one trading session. There’s even a term in the lexicon of market pundits called “The October Effect,” which is the notion that equity prices tend to decline this month. But it’s worth asking if the facts support this supposed phenomenon. A look back a quarter century to 1998, reveals some surprising (to me, at least) results. Using the S&P 500 as a benchmark, the calendar month of October produced net advances in 20 months, and next retreats in only five. That is an arithmetical landslide. As the research website Investopedia concludes, “The October Effect is considered to be more of a psychological expectation than an actual phenomenon, as most statistics counter the theory.” 12 Community Banker
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