by Gary Alexander

October 3, 2023

It happens often in sports – most recently when a woeful 1-3 Baylor team, on the road at favored Central Florida (3-1), trailed 7-35 late in the third quarter, but then scored 29 points in the fourth quarter to win 36-35. The previous week, my beloved New Orleans Saints (NFL) visited Green Bay. The Saints were Marchin’ in to a seeming victory in the final quarter, leading 17-0, when the announcer noted, “the last time the Packers trailed 17-0 at half-time, they rallied to win.” Sure enough, Green Bay won again, 18-17.

Who cares about a Hollywood writers’ strike when sports can deliver such unscripted dramas each week?

The stock market is something like these sporting tilts. The most significant action often happens in the fourth quarter. That doesn’t mean you can ignore the first three quarters. Those nine months provide the foundation for the fireworks to come, but you can’t argue with history, either. In the past 25 years, the fourth quarter has delivered more than twice the returns of the first three quarters: +4.67% vs. just 1.91%:

The S&P 500’s Fourth Quarter More Than Doubled the First 3 Quarters, 1998-2022

Fourth Quarter Results Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There were some exceptions, of course, but many times a dismal downdraft in the first nine months ended with a significantly positive fourth quarter, such as 2001, 2002, 2011, 2015 and, 2022, while the last six pre-presidential election year fourth quarters (like this year) were up 8.1%, on average.

Going back to 1950, and skipping the great turnaround in 2022, the numbers aren’t quite so dramatic, but the fourth quarter still dominates the annual returns from 1950 to 2020, with the S&P 500 up 4% in the fourth quarter, but only 2.1%, 2.0% and 0.7% in each of the previous three quarters:

Standard and Poor's 500 Index Average Fourth Quarter Returns Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

What’s more, each of the three months in this quarter has developed a solid track record, even though October used to be the scariest month, due to memorable crashes in 1929 and 1987, plus a few other minor crashes in past Octobers. In recent decades, however, September has become the worst month.

Since 1950, Pre-Election Years (Like This) Averaged 16.6% Gains

The bigger story is the performance of the market in pre-presidential election years as a whole. Since 1951, the 18 Presidential cycles have averaged +16.6% in the S&P 500, with only one slight downer in 2015, followed by a protean recovery in 2019, +29%. The fourth quarter, however, has not been so healthy, pre-1990, rising only 3.3% in the 18 cycles, brought down in large part by the crash of 1987.

When it comes to 2023, it’s a story of mixed index results, with the S&P 500 index being Goldilocks.

In the first nine months of 2023, the Dow Industrials and Russell 2000 were “too cold,” up only 1.1% and 1.35%, respectively. In contrast, the NASDAQ Composite was “too hot,” up 26.3% and the tech-rich NASDAQ 100 (QQQ) rose 35.1% through Friday, but the S&P 500 was in the middle, rising +11.7%. If 2023 comes up to the average of a 16.6% annual gain, we could see a modest 5% fourth-quarter gain.

Going back further, to 1928, the trend remains the same, though not quite up to the 16.6% since 1950:

United States Stock Returns Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Why the Big Surge in Most Fourth Quarters – And Will it Happen Again?

We can offer some technical reasons for fourth-quarter surges – such as pension-plan funding, tax buying or selling, and year-end fund window dressing – but Louis Navellier and I are convinced that one of the main engines driving fourth-quarter performance is the holiday season, sports, family get-togethers and looking forward to the New Year, especially if we can see some political relief ahead.

Thanksgiving and Christmas are the two most positive, family-oriented holidays on the calendar, and most people enjoy getting together to feast and watch a little football or other sports, and then toast the New Year with hopes for better times in America and in their stocks or portfolio performance.

This time around, we have the added attraction of a revival of earnings after a cyclical trough during the 2023 slow-growth “soft landing” engineered by the Federal Reserve’s interest rate-raising cycle.

Third-quarter earnings season is about to begin, but the market will be trading mostly on earnings guidance for the final quarter and the outlook for 2024. So far, analysts are optimistic about the S&P 500 companies’ prospects for 2024, forecasting (collectively) an 11.7% earnings increase in 2024, following a likely 1% gain when 2023 is fully accounted for, following a mediocre 7% gain in 2022.

According to economist Ed Yardeni and his team, earnings are currently expected to grow in all 11 S&P 500 sectors in 2024, led by the small-population Communication Services sector (+18.2%), then Technology (15.3%), Consumer Discretionary (+15.1%), Health Care (+13.1% and Industrials (+13.1%). Those are mostly the growth-oriented sectors within the S&P spectrum.

When it comes to industry sub-sectors, analysts (using Thomson Reuters I/B/E/S data), see top performance next year in movies and entertainment (+66%), publishing (+51%), property and casualty insurance (+47%), commodity chemicals (+40%), gold (+38%) and semiconductors (+37%). Among those sectors, stock indexes for insurance (-2%) and gold (-16.5%) are down year-to-date.

This is no guarantee of future performance, of course – and neither does any historical trend happen every year – but the folks at The Almanac Investor have shown that the four-year presidential cycle is a reliable historical trend, and fourth-quarter stock surges are much stronger this century than last.

Now, if only my NFL home teams (Seattle and New Orleans) can conquer their fourth-quarter jitters.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Crude Oil Prices Reach a 13-Month High

Income Mail by Bryan Perry
Lower Inflation May Not Mean Lower Treasury Yields

Growth Mail by Gary Alexander
The Fourth Quarter Explosion is About to Start

Global Mail by Ivan Martchev
The Selloff in Stocks is the Fed’s Fault

Sector Spotlight by Jason Bodner
October – the Good News and the Bad News

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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