- Crude rose 5.20% to 92.87 after fresh attacks by Iran’s Houthi allies and a storm that shut some US offshore production, pressuring equities globally. Futures pointed to a second consecutive decline for US benchmarks after they reached records, with the E-mini S and P 500 contract down 0.28% at 7,830.75 and the 10-year Treasury yield at 5.31%. Gold traded at 4,144.60.
- The timing of the record run fits a seasonal pattern. The fourth quarter of a midterm election year has been among the strongest periods to hold the S and P 500, averaging a 6.6% return since 1950, roughly 29% annualised.
- The explanation is usually gridlock, but Spencer Jakab argues the evidence points to certainty instead. A study in the Journal of Financial Economics covering 145 years found US equity premiums averaged an annualised 15.4% in the five months following a midterm election against 3% in all other months, with most of the gain arriving after the vote.
- Treasuries have shown the inverse, performing worse than usual after midterms, consistent with investors buying government debt as pre-election insurance and unwinding once the result is known.
What Happened?
Jakab notes that 2002, the last time a president’s party gained control of Congress at the midterms, produced a 7.9% quarterly gain for the S and P 500 despite eliminating gridlock, which argues the market values knowing who holds power more than it values paralysis. Betting site Polymarket on Wednesday implied a 93% chance of Democrats winning a House majority and 65% for the Senate, and he suggests confidence about the outcome is pulling some of the usual post-election effect forward into the current period.
Why It Matters?
The 2002 counterexample is what makes the argument work and it is worth understanding properly. If gridlock were the mechanism, a year in which the president’s party took full control should have been poor for equities, and instead it produced one of the stronger quarters. What changed in both cases was that the uncertainty resolved. That reframing matters for positioning, because it means the relevant variable is the resolution date rather than the composition of the result, and it removes the need to forecast which party wins. One caution deserves equal weight. A 145-year calendar effect generating a 15.4% annualised premium is a striking result, and seasonal patterns identified in historical data have a weak record of persisting once published and widely known. The study is five years old, the effect is well documented, and Jakab himself observes that this year the gains appear to be arriving before the vote. An anomaly that migrates earlier each cycle is an anomaly being arbitraged. The Treasury side is the more actionable observation for allocators. If the historical pattern holds, government bonds underperform after midterms as the safety trade unwinds, and that would compound an already difficult setup where the 10-year sits at 5.31% and long yields are being driven by term premium rather than policy expectations. Anyone adding duration ahead of November on defensive grounds should know the seasonal record runs against them afterward. The oil move is the more immediate development and it undercuts the emerging consensus that energy pressure is easing. A 5.2% daily gain on renewed Houthi attacks and Gulf shut-ins arrives days after the G7 agreed to release up to 100 million barrels and the EIA projected gradually rising Middle East exports. Supply disruption remains the dominant variable, and with services prices paid at a four-year high and consumer price data due October 14, a renewed oil shock feeds directly into the rate path.
What Next?
Consumer price data on October 14 is the next scheduled event and the oil move makes it more consequential. Watch whether crude holds above 92 or retraces as the Gulf shut-ins are resolved, since weather disruption is temporary while the Houthi attacks are not. The midterms on November 3 are the resolution date the seasonal argument depends on, and prediction market pricing is worth monitoring as a real-time gauge of how much certainty is already priced. For bond holders, the post-election pattern of weaker Treasury returns is the historical base case to weigh against current yields. Equity markets reaching records while oil surges and long yields sit at generational highs remains the central tension, and one of those will resolve first.
Affected Tickers and Coins: CL, GC, ZN, ES
Source: The Wall Street Journal
