7 Things to Know About the Historically Strong Fourth Quarter

Blocks, Q3 rolling to Q4

“You make most of your money in a bear market, you just don’t realize it at the time.”
Shelby Cullom Davis

We all blinked, and it is now October.  This can be a good thing if you’re hoping for some higher stock prices. As this great quote by Shelby Cullom Davis above explains, it is the decisions that people make in a bear market that may greatly impact their investments down the road.

Are you going to sell now that stocks are firmly in a bear market? Many investors have done that over the years, and they missed out on rallies as stocks eventually came back to new highs. This year may not have been fun at all for investors, but better times could be coming. And making a rash decision now could greatly impact your investments years from now.

Let’s take a closer look at the fourth quarter and show why a potential year-end rally (and maybe more) could be quite likely.

Q4: Historically Strong

First, the fourth quarter is historically the best quarter of the year, with the S&P 500 up 4.1% on average and up nearly 80% of the time.

Second, this is a midterm year. The good news is that market gains during these years are backloaded. In fact, October is typically the best month of a midterm year, followed up by the second-best month in November and third best in December.

Midterm Q4

Third, here’s a chart we’ve shared a lot lately, but we’ll do it again, as it is very powerful. Midterm years tend to see weak stock returns in the first three quarters (check for 2022), but the fourth quarter of a midterm is historically the second-best quarter out of the full four-year Presidential cycle. Historical trends point to the best quarter and third best quarter being right around the corner early next year. As bad as things have been so far this year, the calendar is a major tailwind currently.

Fourth, the fourth quarter typically does even better when September is down big. Given this year saw one of the worst Septembers ever for stocks, this could be another clue a bounce back is possible. To quote Lloyd Christmas, “So you’re telling me there’s a chance!”


2022: A Rough Start

Fifth, this was the third worst start to a year ever for the S&P 500. The good news is this: Looking at the 10 worst starts ever to a year, the fourth quarter saw higher performance nine times. Only in 2008 was it red and fortunately, we don’t think we are in that type of environment. Going out a year, the S&P 500 was up eight times and higher a median of 25.5%.

Sixth, the S&P 500 bear market cracked down 25% last week. As bad as that feels to investors, the stock market doesn’t care about what just happened and only cares about what is next. The good news is once a bear market is down 25%, the returns going out can be quite strong, with the S&P 500 up nearly 23% on average a year later. Additionally, many lows took place soon after this milestone was hit, so a major low could be near. Yes, the ‘73/’74 recession, tech bubble, and financial crisis all saw more weakness (and in some cases for a long time), but we don’t see an economy nearly as weak as those times. Therefore, we think this time will play out like the others and stronger returns going out could be quite likely.

Below is another way of showing the study above. As you can see, in many instances, once the S&P 500 was down 25% it was quite near a major low.

Seventh and lastly, October is known as a bear market killer. Remember, this year was the worst start to a year since 1974 and 2002. Below we show how bear markets tend to bottom in October, and sure enough, both of those vicious bears ended in October. The ‘73/’74 bear ended on October 3, while the tech bubble bear market bottomed on October 9.

We understand feelings of concern here at the Carson Investment Research team. Could stocks bottom and rally? We think there’s an above-average chance. And a chance is all we need. And to quotes Lloyd Christmas again …

Please continue to follow us, as we break down what is happening to the economy and markets.


This was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

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