Those who follow politics closely will undoubtedly recognize the term “October surprise.” Perhaps some of you remember the George W. Bush DUI of 2000, or the Osama bin Laden video that boosted Bush’s campaign in 2004. These are examples of October surprises that impacted presidential elections, and in some instances, carried enough weight to determine who became the president of the United States.
The stock market has had its share of unique October surprises as well, which can be thought of as major market corrections all happening in October. One could argue that those ramifications have a heavier impact on our country than that of the presidential election. Two infamous dates (October 28, 1929, and October 19, 1987) were both October surprises that fell on a Monday – coining them the term Black Monday – and happened to be two of the most well-known stock market crashes in history. Some analysts are projecting that the market could be in store for a surprise this October.
Aside from the delta variant and the current crisis in Afghanistan, the three main problems facing the market are inflation, increase in taxes and interest rate hikes. Any one of these variables’ influence alone can create a negative turn to the market, but all five together could spur some major impacts. August usually ends where it began and September is used as an evaluation period, while action is taken in October. In 2021, it seems that we are following that parallel.
Warren Buffet recently commented, “We’re seeing very substantial inflation … I mean, we’re raising prices. People are raising prices to us. And it’s being accepted … the costs are just up, up, up … it’s almost a buying frenzy … there’s more inflation going on than people would have anticipated.”
Billionaire investor Stanley Druckenmiller agreed, saying, “My overriding theme is inflation relative to what the policymakers think. Basically, the play is inflation” (Stansberry Research 2021). I do not need to hear these visionaries tell me there is inflation. I can feel it at the gas pump and the grocery store. I wouldn’t qualify this as an October surprise, but it is a major contributing factor if we do have a market correction.
An increase in taxation is something that could qualify as an October surprise to me. However, I don’t see Congress doing this because of the immense problems it would create. The Fed announced earlier this year that it is accelerating interest rate increases to 2022. Originally, it was projected that we would start to see increasing rates in 2023, but experts are now anticipating that rise well before then.
Interest rates and inflation have gone side by side the past two years since rates have been so low and everyone is refinancing or buying a home. All that activity is contributing to inflation. I don’t think interest rate hikes would qualify as an October surprise, unless we see a significant rated increase in near future.
The two biggest candidates creating a potential surprise are the delta variant and the ongoing crisis in Afghanistan. A discussion around the delta variant would require its own article, but I will touch on a few important points. It’s unknown if we will experience large shutdowns like we did in 2020, and obviously a shutdown as such would create economic problems. I was really excited to take my wife to the Garth Brooks concert in Baltimore, but sadly it was canceled due the variant. The economic ramifications from this one example should be obvious, and while I’m not in support of shutdowns, I can understand why they are implemented.
The complicating part of a shutdown is that it creates market downturn, but once the market is down, the anticipation for the opening of the country has shown to create growth on the upside of the economy’s turning. It remains to be seen how the market responds to any future shutdowns, but another one would certainly qualify as an October surprise for our economy and markets.
News has been surfacing regarding the situation in Afghanistan, and I am certainly not an expert in military affairs, but the ongoing problems in Afghanistan certainly constitute as an October surprise and have major ramifications. Afghanistan is a major supplier of imported minerals, and experts have revealed that the country is sitting on nearly $1 trillion worth of rare minerals (CNBC, 2021). The Taliban’s control will undeniably have serious effects on the markets in the US. Lithium is used in everything from cellphone batteries to computer semiconductors, and a major source of this rare, critical resource is Afghanistan. How the Taliban handles things certainly impacts the market.
The point here is not to identify, anticipate or project what is going to happen in October or the near future; the point is to recognize that the current market bull run may not continue. I have identified several examples of factors that could create a correction and it’s not important which one is accurate. What’s important is to prepare for it so when Garth Brooks does decide to play here again, you can go and enjoy it!
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