What Can The Strong Third Quarter Tell Us About The Fourth Quarter?

The surprise summer rally continued in September, as the S&P 500 Index gained for the sixth consecutive month. The third quarter is usually volatile, but this year it was one of the calmest ever, with the S&P 500 not closing up or down 1% on a single day. It last did that in 1963!

“The S&P 500 is up six months in a row, but the bulls might be interested in knowing that the fourth quarter of a midterm year has historically been the best quarter out of the entire four-year presidential cycle,” explained Senior Market Strategist Ryan Detrick.

It doesn’t end there though, as the first and second quarters of a pre-election year have posted the second and third strongest returns on average, respectively. In other words, the next three quarters have been the strongest out of the entire presidential cycle.

The Next Three Quarters are Historically Strong

What about the big gain stocks sported in the third quarter? Historically, the third quarter is the worst quarter — but that sure wasn’t the case this year with an impressive 7.2% run-up for the S&P 500. Well, this could be another great sign for bulls, as the fourth quarter has often been stronger after big third-quarter gains.

As our LPL Chart of the Day shows, after the third quarter gains more than 7% (like it did in 2018), the fourth quarter has finished green 13 out of the past 14 times. Adding to that momentum, the returns going out both two quarters and four quarters historically have seen stronger than average returns.

The Strong Third Quarter Could Be a Bullish Tell for the Bulls

For more of our thoughts on the recent strong quarter, be sure to read our latest Weekly Market Commentary.


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