Last week we looked at the returns for the Third Quarter and a little bit of analysis for the October to December period. This week we get into the weeds on how the fourth quarter should evolve.
First , let’s take a look at the last 10 years (2015 through 2024) for how October, November and December played out. October has seen 5 up and 5 down months in the last ten years with an average return of 1.26%. The best year was 2015 where the S&P 500 rose 8.30%. The worst year was 2018 where the S&P 500 fell -6.94%. That was the year that the Federal Reserve was restrictive in the fourth quarter and then gave up that approach late in December which started a 25.18% rally that lasted into April of 2019. Last October the S&P 500 fell -0.99%.
November has seen 9 up months and 1 down months in the last ten years with an average return of 3.83%. The best year was the pandemic year of 2020 where the S&P 500 rose 10.75%. The worst year was 2021 where the S&P 500 fell a paltry -0.83% which was really not that bad. Last November saw the S&P 500 rise 5.73%. Finally, December has seen 6 up months and 4 down months in the last 10 years with an average return of 0.10%. The best year was 2023 where the S&P 500 rose 4.42%. The worst year was 2018 where the S&P 500 fell -9.94% that month.
Last December saw the S&P 500 fall -2.50%. Last week we noted our favorite play would be to own the laggard which would be the S&P 400 MidCap. This is really interesting as usually the S&P 400 outperforms the Russell 2000 but not this year. That said, we think it will and like the S&P 400 MidCap ETF (MDY) as a play for the fourth quarter. So far this year the S&P 400 is up 5.39% through October 8th. Last year the S&P 400 made 12.20%.
Over the last 10 years, the S&P 400 has made 8.82% a year. That means the fourth quarter return from here should be 3.43%. Stocks will continue to advance with inflation under 3.00% and the economy not getting too hot which would cause interest rates on the 20-Year to rise above 5.00%.
Earnings season will start in a couple weeks and the market should see decent growth like it did in the second quarter maybe letting the S&P 500 clear 7000 by year end. On October 1st, the S&P 500 cleared 6700 and so far there has been no retest. Maybe that 3.43% will get here before that first snow in Wisconsin.
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