10-6-26: The Fourth Quarter is When Stocks Usually Shine the Brightest

by Louis Navellier

October 6, 2026

The fourth-quarter is seasonally strong, especially in midterm election years, like 2026, and then the third year of a presidential election cycle – next year, 2027, after the midterm election – is the strongest year in the four-year presidential cycle. While others fear high interest rates and any further Fed key rate hikes could derail the overall stock market; that fear mostly applies to dividend or financial stocks. However, higher rates will not hurt most growth stocks, which have beaten value stocks for 12-consecutive years.

As for higher rates, the bond vigilantes have been pushing interest rates higher globally, with Japan, Britain and France becoming primary targets of bond vigilantes, since their underlying government debt will likely be serviced with more money printing (quantitative easing), as the Japanese has demonstrated. There is now a staggering $365 trillion in government debt worldwide, requiring bond offerings galore!

The Bank of England (BoE) did not raise rates like the Fed and the European Central Bank (ECB) did, and this weakened the British pound, but the BoE is considering measures to improve gilt (British government debt) repo market resilience and “manage risks from the increase in market leverage” since early 2025.

In announcing these measures, the Bank of England wrote, “Although hedge fund leverage in the gilt market has been stable, it remains elevated, and deeper interconnections between vulnerabilities means the risk of a sharp adjustment persists,” adding: “This underlines the importance of the Bank’s work on gilt repo market resilience.” Complicating matters further is British Prime Minister Andy Burnham is now making overtures for the United Kingdom to rejoin the European Union (EU), repealing 2016’s “Brexit.”

The Fed’s rate increases have actually strengthened the dollar, but due to the Bank of England’s refusal to raise key interest rates, the British pound may be the next currency to fall, followed by the euro.

The current political chaos in Germany after the Afd Party victories in regional elections is expected to undermine the EU, since the Afd Party wants to end open immigration and the green energy policies that have systematically caused energy prices to soar and hinder manufacturing competitiveness.

Canadian and EU officials are currently scheduled to meet later this month to solidify the terms of a possible partnership pact in a “major bilateral summit” in Montreal starting October 29, 2026. President Trump called this a “hostile act,” and then he cited Section 338 of the Trade Act of 1930, the first time it’s been used to put levies on a major trading partner. Several imported goods from Canada are now banned (like motorcycles with petrol engines larger than 800cc), plus dairy and alcohol products. President Trump said he expects Canada to cut their tariffs on U.S. goods and apologize within the next three to four-weeks.

U.S. Trade Representative Jamieson Greer recently characterized the dispute with Canada as a larger ideological battle over the future of globalization. Specifically, Greer said, “The difference is that [Canada’s] Prime Minister Carney, and his team want to double-down on globalization.” Greer said, “We are reshoring steel, we are reshoring cars. We have new announcements of Stellantis, we have new announcements for steel … because of our global trade policy, which of course includes Canada.”

I believe onshoring is good for U.S. GDP growth rates. One reason I predicted 5% third-quarter U.S. GDP growth (which I predicted last December on Maria Bartiromo’s show) is that higher interest rates are making the U.S. dollar amazingly strong!  There is no doubt the U.S. remains an oasis and is the engine behind global GDP growth. Typically, a strong U.S. dollar is great news for small capitalization stocks, which tend to have more domestic revenue (in dollars) compared to the S&P 500, with approximately 50% of revenue in international trade (involving currency exchanges). Also, another Russell index realignment is coming in November, and that could fuel an “early January effect” in weeks leading up to Thanksgiving!

The other good news, released last week, is that the Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index, is cooling. Although the PCE rose 0.3% in August, it rose only 3.4% in the past 12-months – a clear deceleration from July’s 3.7% annual pace. The core PCE, excluding food and energy, rose 0.2% in August and only 3.0% in the past 12-months, down from a 3.3% in July.

New York Fed President John Williams last Tuesday said the Federal Open Market Committee (FOMC) rate increase could wait until December, leaving rates untouched in October, before the election.

Then, on Wednesday, Minneapolis Fed President Neel Kashkari said at the Council on Foreign Relations that he expects one more key interest rate hike this year. In his best Fedspeak, Kashkari also said his projections could change as more economic data is announced. Kashkari is one of the leading hawks on the FOMC, so I was encouraged to hear Kashkari say he was open to changing his rate forecast.

Dissecting the September Job Growth and Other Recent Economic Indicators

Last Wednesday, ADP reported that 90,000 private payroll jobs were created in September – amounting to the strongest report they’ve released in the past three months. Construction jobs increased by 15,000 and manufacturing jobs rose by 17,000, helping accelerate GDP growth. Education & health services led in the new job categories with 55,000 net new jobs, followed by leisure & hospitality with 22,000 jobs.

Friday’s Labor Department was not so bullish, reporting only 29,000 new payroll jobs in September, substantially below economists’ consensus estimate of 84,000. Also, the July and August payroll reports were revised down by a cumulative 60,000. The unemployment rate rose to 4.2%, vs. 4.1% in August. Average hourly earnings rose 0.1% (5 cents) to $37.81 per hour and 3% in the past 12-months. Overall, as I said on Fox Business Friday morning, a weak payroll report would help lower Treasury yields and that is exactly what happened, so hopefully the Fed will not raise key interest rates at its next FOMC meeting.

In other economic news, the Institute of Supply Management (ISM) announced on Thursday that its manufacturing index slipped slightly to 54.5 in September, down from 54.6 in August. The new orders component was impressive, rising to 55.3 in September, up from 53.7 in August. I especially liked how the backlog of order component surged to 56.4 in September, up from 51.8 in August. Overall, 12 of the 14 industries that ISM surveyed rose in September, so the manufacturing sector remains very healthy.

Turning to the GDP, the Commerce Department revised second-quarter GDP growth up to a 2.2% annual pace, from 1.5% previously estimated. Higher U.S. exports, business investment and consumer spending were cited as reasons for the upward revision. The Atlanta Fed now estimates third-quarter GDP will be expanding at a 3.7% annual pace, down from their previous estimate of 5%, so it will be interesting to see where third-quarter GDP actually ends up after the trade adjustments, which can distort GDP calculations.

As a result, I expect a strong finish to the year, after waves of positive earnings announcements plus upbeat guidance and rising order backlogs. The icing on the cake is strong seasonal pressure, plus another Russell index realignment. Adding all these factors together, we are likely to see a strong year-end rally!