The market is currently closely monitoring the Federal Reserve’s interest rate movements and the upcoming important earnings season, while the threat of a US government shutdown is also intensifying. Against this complex backdrop, US stocks are set to face another significant risk factor – historic October volatility. According to analysis by Goldman Sachs’ derivatives team, the average historical price volatility of the S&P 500 in October is about 20% higher than in other months.
John Marshall, head of derivatives research at Goldman Sachs, points out that October’s market volatility is by no means a coincidence. For many investors and companies that need to assess their performance by year-end, this is a critical period. Performance pressure significantly drives up market trading volume and volatility, as investors focus intensely on corporate earnings reports, analyst meetings, and management’s future forecasts. Historical data further supports this view: data since 1928 shows that October volatility is significantly higher, and in recent decades, this characteristic has become more pronounced due to the typically high volume of positive corporate news in the fourth quarter. Specifically, the actual volatility of the S&P 500 has historically increased by an average of 26% from August to October.
To navigate this seasonal volatility, the Goldman Sachs derivatives team favors event-driven trading strategies. They recommend buying short-term options on trading days with clear market catalysts, while avoiding volatility trades during periods lacking major events, to capitalize on potential market turbulence during the earnings season. Goldman Sachs data shows that the upcoming earnings season is often one of the periods with the most intense stock price volatility throughout the year. Meanwhile, options traders are beginning to position for year-end market movements and are reducing bearish hedges due to optimism about interest rate cuts, which could also exacerbate the risk of price swings.
While concerns about market volatility emerge, the macro policy outlook is equally captivating. Prominent US hedge fund manager Ken Griffin predicts that the Federal Reserve might cut rates again in 2025, as its policy focus shifts towards the labor market. He notes that the Fed is concerned about the job market, evident in the decline in the number of new jobs created. The US unemployment rate rose to 4.3% in August, the highest level since 2021, and Fed Chair Powell recently mentioned signs of cooling in the labor market. Griffin believes that immigration is crucial for sustaining US population growth and job creation capacity, and that the true state of the labor market remains uncertain. Although the market anticipates rate cuts, the US economy’s robust performance suggests that further Fed easing is not a foregone conclusion.
