Deutsche Bank’s Reid sees a potential final dip for stocks this year

 Deutsche Bank’s Global Head of Macro Research Jim Reid said in a note Tuesday that historical seasonality suggests stocks may be at or near their final dip of the year, with the midterm and year-end tailwinds now lining up.

Reid looked at the average path of the S&P 500 through the calendar year since 1928, split between midterm and non-midterm years.

“Today, 27 October, is historically when the final dip of a typical year bottoms out,” he wrote.

He explained that in an average year, the index peaks around Sept. 2, falls to a Sept. 30 low, bounces, and then has one last stumble that bottoms in late October. From there, Reid said, it is broadly one-way traffic into year-end.

Midterm years typically peak in late April and slide about 4% to 5% into an early October trough as election uncertainty builds. In 21 of the last 23 midterm years, the S&P 500 was higher over the three months from early October.

Reid believes this year has followed a gentler version of the midterm script. The S&P 500 closed at a record on May 29, up roughly 11% year to date, but nearly five months later it is less than 1% higher.

With the election on Nov. 3, he said the midterm and year-end seasonal tailwinds now line up about as well as the calendar allows. However, he cautioned that averages hide enormous dispersion and that some midterm years have seen bear markets.

“Seasonality isn’t destiny, and worries around Iran, AI and France won’t mysteriously vanish,” Reid said.

“But if history is any guide, today is often the day the reindeer wake their master up and the Santa rally starts to rev up,” he added.