In the fall, there is a resurrection of hope for a new year, a time of family gatherings, feasting, and football games, with two major holidays, Thanksgiving and Christmas, most years leavened with rising paper profits generated during the market’s fattest feasts in most years.
According to my colleague Jason Bodner from MapSignals, the largest annual market increases since 1990 have come in the last three calendar months. October’s average returns are solid (+1.3% on average), December is even better (+1.6%), and November is the Gold Medal market-month, with the highest average gains (+2.95%).
Breaking the averages down by quarters, Jason’s 35-year totals are astonishingly one-sided, with the final quarter beating the other three-quarters combined, in most cases (all except the ).
As you can see, the and Russell 2000 perform over 2% better in the fourth quarter than the previous three quarters combined, while the S&P 500 is up nearly 1% over the previous three quarters combined.
Next, let’s focus on recent fall seasons – September 21 to December 21 in most years – in the S&P 500.
Since 2008’s Great Recession, the only big downdraft was 2018, when the new Fed Chair Jerome Powell endured President Trump’s Twitter war over Powell’s stubborn interest rate increases in the fall of 2018.
Including the dismal 2018, 14 of 16 recent autumns have risen by an average 4.5%. Barring another war of words between Chairman Powell and President Trump, we could see another 4+% rise next quarter.
Going back further in history, the fourth quarter has risen 80% of the time and by an average of over 4%.
Why such consistently strong markets in the fourth quarter? The cheery holiday season – with family, feasting, and football lifting our spirits – plus the technical market forces of year-end tax selling and buying, creating more breadth in the market and better-balanced portfolios. There is also the usual late-year Santa Claus Rally and an early January Effect, often focusing on smaller stocks.
Basically, the end of the year is a time to anticipate positive returns in the following year – the opposite of the sad serenades so prevalent in our best September and Autumn-oriented historical Hit Parade. If you are interested in music, here are the 12 wistful Autumn songs:
