The S&P 500 is heading into what is historically its strongest season, but a specific set of market conditions is flashing a warning sign for investors in the immediate short-term.
While the fourth quarter has delivered the best average returns for the index since 1950, historical data shows that a strong year-to-date performance through September often leads to a flat or negative October, creating a conflicting picture for Wall Street.
A Strong Fourth Quarter Is On The Cards
Data compiled by Carson Research’s Chief Market Strategist, Ryan Detrick, highlights this divergence. The fourth quarter has been a boon for investors, boasting an average return of 4.2%, significantly outperforming all other quarters.
“Q4 is the best quarter of the year historically, and it isn’t even really close,” Detrick notes, pointing to data showing the S&P 500 finishes higher 80% of the time in the final three months of the year.
October Can Be Somber After Strong 9 Months
However, the path through the fourth quarter may not be smooth. The primary source of concern comes from the market’s strong performance so far this year.
Detrick’s analysis shows that in years when the S&P 500 was up more than 10% year-to-date at the end of September, October’s performance has been a coin flip.
“October is down on avg and higher only 50% of time” under these conditions, he explains. The average return for October in these instances is -0.3%, a stark contrast to the quarter’s overall strength.
S&P 500 Can Return Over 5% In Q4 If It Hits Fresh Highs In September
Adding another layer to the outlook, other data suggests a positive setup for the full quarter.
When the S&P 500 makes a new 52-week high in September, as it has this year, the median return for the fourth quarter has been a robust 5.3%, with the index finishing higher a staggering 90.9% of the time.
This suggests that while October may present headwinds and potential volatility, the broader trend for the remainder of the year remains positive. Investors are left to weigh the immediate caution flags for October against the historically bullish backdrop for the full fourth quarter.
Price Action
While history suggests these market movements, investors should know that past performance is not an indicator of future results.
The SPDR S&P 500 ETF Trust (NYSE: SPY) and Invesco QQQ Trust ETF (NASDAQ: QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Friday. The SPY was up 0.57% at $661.82, while the QQQ rose 0.41% to $595.97, according to Benzinga Pro data.
Meanwhile, SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA), tracking the Dow Jones, ended 0.62% higher at $462.28.
On Monday, the futures of Dow Jones, S&P 500 and Nasdaq 100 indices were trading higher in premarket.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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