Welcome To The Fourth Quarter

Market Blog
October 03, 2019

Well, that wasn’t the start to the fourth quarter that the bulls wanted. The S&P 500 Index has dropped at least 1% on consecutive days to start the fourth quarter for the first time in history. It was down about 3% after two days, the worst start to the fourth quarter since 2009.

So, what has happened or changed? There are still headlines on the impeachment inquiry, protests in Hong Kong, weakening manufacturing data, and trade tensions. As we discussed on October 2, September was historically calm and October tends to be quite volatile. So maybe it was simply “time” for some seasonal volatility.

This might be a rough start, but the fourth quarter is the most bullish quarter of the year.  Since 1950*, the S&P 500 has gained 3.9% on average, and has closed higher 78.3% of the time

The S&P 500’s 14% drop in last year’s fourth quarter was unusual, but it could point to a better end to 2019. Since WWII, the fourth quarter has been down two years in a row only twice — once during the financial crisis, and once during massively high inflation in the late 1970s.

“Yes, this has been a historically bad start to the fourth quarter. But the good news is when the S&P 500 has been up more than 15% for the year heading into the usually bullish fourth quarter, the returns actually became stronger during the fourth quarter,” explained LPL Financial Senior Market Strategist Ryan Detrick. “In fact, since WWII this has happened 17 times. The fourth quarter was in the green 15 times with a median return of a very impressive 4.6%.”

The catch is during these years we saw some volatility and potential weakness during October, before the seasonal tailwinds of November and December kicked in.

As shown in the LPL Chart of the Day, The Fourth Quarter Has Tended To Be Strong For Stocks, the fourth quarter has usually been quite strong at this point in the presidential cycle.

fourth-quarter-strong_1

 

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This Research material was prepared by LPL Financial, LLC.

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