The S&P 500 just extended its winning streak to seven straight quarters, and it’s reasonable to wonder just how long it can continue…[That being said, however,] investors often enjoy a strong wind at their back in the fourth quarter, based on seasonal patterns and stock market history. Will 2014 be different [or will, as history suggests,] investors find a shiny new quarter during the next three months? [This article looks at these patterns to come to a better understanding of how the markets likely will perform for the balance of 2014.]
The above introductory comments are edited excerpts from an article* by Chris Kimble (blog.kimblechartingsolutions.com) entitled 3 Reasons Why Stocks Could Mint a Shiny Fourth Quarter for Investors.
Kimble goes on to say in further edited excerpts:
Studying seasonal cycles can help investors gain perspective and align themselves with likelier outcomes. When looking at the S&P 500 [below it is evident that] more than 50% of the index’s gains over the past 25 years took place during the final 3 months of the year. (Source: Doug Short)
Below are 3 reasons why history suggests investors can expect good things the next 3 months even if the economy faces questions:
1) ‘Sell in May’ goes the other way
For whatever reason, the stock market tends to do well in the 4th quarter. It’s the beginning of the November through April period. The ‘sell in May’ goes the other way.
Since 1950 the 4th Qtr. of the S&P 500 has:
- posted an average gain of more than 4%,
- and has finished higher 78% of the time.
In fact, we are entering the half of the year that tends to be strong for the S&P 500. Since World War II:
- the average gain has been 15.3%
- and the frequency of advance has been 94%.
2) The Presidential Cycle
Breaking down all 16 quarters during a 4-year Presidential Cycle since 1950 found that:
- the 4th Qtr. of the 2nd year has the highest return average…
- with an average of 8% and
- rising 88% of the time.
Given that President Obama is in his 2nd term this is the 6th year in office and the following is what happened during the 6th year of the administrations of Eisenhower, Reagan, Clinton and Bush:
- the average return was 23.24%
- rising 100% of the time
3) The Santa Claus Rally
One big reason the 4th Qtr. tends to be strong is that December is a great month for the stock market.
Since 1928, the S&P 500:
- has its best monthly winning percentage in December with 64 gains and 22 losses and
- generates its highest monthly gain of 1.5% in December (tied with July).
Studying seasonal cycles can help investors gain perspective and align themselves with likelier outcomes. Of course, nothing is certain when it comes to investing, and it’s important to remember that these are average returns. In other words, every year is different.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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