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After another difficult month for stocks, here’s some good news: Prices tend to rise towards the end of the year.
Indeed, the stock market is now entering its all-time best three-month period of the calendar year, analysts at Bespoke Investment Group wrote in a note to clients on Wednesday.
A rebound for stocks can’t come soon enough for investors. Financial markets have struggled this year with a string of Federal Reserve rate hikes aimed at bringing down inflation. September – typically the worst month of the year for stocks – lived up to its reputation and was brutal. The Dow Jones Industrial Average fell into a bear market this week, joining the other two major stock indices that were already down more than 20% from a recent high, the S&P 500 and the Nasdaq Composite. The S&P 500 was down about 24% for the year as of Friday morning.
The good news for investors is that stocks tend to do better over the last three months of the year after suffering in September.
Here’s what history tells us about how stocks have traditionally performed in October, November, and December — and perhaps what that means for the market in late 2022.
How stocks perform in October, November, December
According to data from CFRA Research, the S&P 500 has risen an average of about 0.9% in October, 1.4% in November and 1.6% in December since the mid-1940s. In comparison, the index lost an average of 0.6% in September.
Since 1945, the S&P 500 is up 60% in October, 66% in November and a whopping 77% in December, CFRA found.
It is important to note that there is no guarantee that seasonal trends will continue this year. Also, the economy has been full of uncertainty lately. The Fed has signaled that it plans to continue raising rates as needed to bring down inflation — a move that also typically hurts the prices of financial assets like stocks, bonds, and crypto. Wall Street pundits are already warning that stocks may need to fall further.
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The market time beats the timing of the market
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Stocks rally at the end of the mid-election years
The US midterm elections will also be a focus in November, and not just for voters: the last three months of mid-year election years have historically been good for the stock market.
“Years between years tend to have very strong year-end rallies, while the first three quarters are usually weak,” Ryan Detrick, Carson Group’s chief market strategist, told Money via email and December.”
According to CFRA Research, the S&P 500 has returned an average monthly gain of 2.5% in October, 2.4% in November and 1.4% in December over the intermediate years since 1945.
“Hence, history says, but doesn’t guarantee, that we could see a prolonged recovery from the current recession,” said Sam Stovall, CFRA’s chief investment strategist.
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What investors should do now
Make no mistake: the volatility that investors have been feeling in the market is probably not over yet. In fact, history tells us that October tends to be particularly volatile for stocks.
While market timing can be tempting, financial advisors typically recommend avoiding basing your investment plan on market movements such as seasonal trends.
Instead, they say the best investment strategy is to focus on your goals, time horizon, and risk tolerance, and ensure you have a well-diversified portfolio that can withstand volatility over the long term.
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