After a strong 3 quarters of a year, U.S. equity markets go into the last quarter with strong gains throughout the board. Typically, the stocks have their finest efficiency in the November to April duration. Looking back, in the duration from 1970 to present, the stock market balanced an above 4% return in the 4th quarter of the year. 2024 is an election year, and while still favorable, the returns in election years have actually been silenced with the S&P 500 returning 2% as revealed in Figure 1. This is significantly listed below a normal year where returns balance over 4% in the 4th quarter.
Figure 1: Index Averages in Q4 of Election Year
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Within the 4th quarter, October tends to be the issue month with an unfavorable return for all 3 of the significant indexes. Normally, this is followed by a healing in November and December once the election passes. As an entire, the Nasdaq tends to lag the S&P 500 and DJIA in the 4th quarter of election years. This is revealed listed below in Figure 2.
Figure 2: Monthly Index Averages in Q4 of Election Year
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Taking a look at each year given that 1970, the regular monthly efficiency differs as seen in the 3 tables listed below. October is unfavorable 6 of 13 times on the S&P 500, 8 of 13 on the DJIA, and 10 of 13 on the Nasdaq. November is unfavorable 5, 6, and 4 times on the particular indices. December is likewise unfavorable 5, 6, and 4 times on the particular indices.
Figures 3, 4, 5: Monthly Index Performance in Q4 of Election Year
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In regards to sector efficiency throughout the 4th quarter of an election year, more cyclical groups tend to be preferred with Transportation, Capital Equipment and Basic Materials doing finest. Remarkably, the protective sector, Utility, likewise succeeds. It appears financiers go into the next regard to the governmental cycle more positive on the economy. On the other hand, Technology, which delights in considerable outperformance in the 3rd year of the cycle and the very first half of the 4th year, tends to lag prior to the election, as seen in Figure 6.
Figure 6: Sector Averages in Q4 of Election Year
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Presently, the sector setup agrees with for numerous of the historic Q4 leaders consisting of Capital Equipment and Utility, however less so for Energy and Transportation. These might develop strong chances in the 2 latter sectors if history holds. Looking forward a bit additional, when through October, the market moves into the much more traditionally beneficial November through April duration for efficiency.
Figure 7: Index Averages May-October and November-April
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Into Q4 2024, the marketplace internals are extremely strong, so it will be intriguing to see if this October can buck its regular pattern and be strong.