Despite ending on a rough note with several straight weeks of losses to end September, Q3 was actually a surprisingly strong quarter for investors, with the S&P rising 8.5%. And according to history, that bodes well for Q4.
As LPL Financial’s Ryan Detrick points out, following big gains for markets (7.5%+) in Q3, stocks have “gained every single time, up 11 for 11, with an average return of 7.3%” in the fourth quarter for the S&P 500 since 1950.
“The third quarter is usually weak, but when it is really strong, like it was in 2020, this says the rally isn’t over yet,” Detrick wrote in a note Thursday.
Typically Q4 is historically the best quarter of the year for investors, with the S&P 500 up 3.9% on average and higher almost 79% of the time, Detrick points out.
But to be sure, 2020 is anything but predictable, and markets have recently been bombarded by a will-they-won’t-they debate in Congress over passing new stimulus. Kicking off the first day of Q4, October 1, markets traded up roughly 0.5% in early afternoon trading on hopes the White House and Democrats might reach a compromise.
But apart from stimulus concerns, analysts caution the month of October tends to be volatile. In fact, “investors may be convinced that Halloween was purposely placed in October because the market’s actions can be so spooky,” CFRA’s Sam Stovall wrote in a recent note. That’s because the month tends to have some of the biggest gains and worst declines, Stovall wrote. Plus, in an election year, September and October are often weaker months for the markets.
This year, those like Edward Jones’s Nela Richardson think “the choppiness we saw in September will spill over into October,” she recently told Fortune. “It’s unlikely given the election and the near-term uncertainty about stimulus that we’ll see the smooth rally that we saw this summer.”
Still, looking to historical returns, investors shouldn’t write off Q4 just yet.
More must-read finance coverage from Fortune:
- What Wall Street needs from the 2020 election
- The biggest takeaway from the New York Times tax exposé? Trump is a lousy businessman.
- September was bad for investors. And watch out: October may be “choppier”
- This veteran Wall Street investor thinks pundits are overestimating the chances of a Biden victory
- How the financial impact of coronavirus could haunt consumers for a long time