Key takeaways:
- October is historically the worst month for stocks, but November and December have performed well.
- Reviewing the historical record of stocks in October and the fourth quarter may offer clarity about the equity market’s path forward.
10/09/2024 – A few weeks ago, I wrote about the seasonality of stock performance, particularly the historically poor track record of stocks in September. This was following last month’s volatile start, when the S&P 500® Index made history by falling 4.2% during the first week of September—the worst first week of any month on record for the benchmark index.
However, as the rest of last month showed, seasonality does not have to dictate outcomes. Stock investors moved past the early September volatility and concentrated on robust second-quarter earnings growth, positive economic momentum, the beginning of the Federal Reserve’s easing cycle, and falling interest rates. The S&P 500 finished September up 2.1% and 5.9% for the third quarter, marking its fourth consecutive quarter of gains.
Notably, market leadership shifted in September from mega-cap tech stocks to more defensive sectors like utilities and real estate. The S&P 500® Equal Weight Index outperformed the S&P 500 by about 4% for the third quarter, while small-cap stocks, as measured by the S&P SmallCap 600® Index, gained over 10%. This broadening of market performance underscored the resilience and adaptability of the current bull market.
Just as investors heard a lot about September’s notorious volatility, they may hear similar warnings about October, especially with the presidential elections looming in November. This is an opportune time for investors to remember that volatility is an inherent aspect of investing, not a defect. Reviewing the historical performance of stocks in October and the fourth quarter may offer investors clarity about the equity market’s path forward.
It is common for the market to churn in October, especially following a strong year-to-date performance heading into Q4. Since 1950, the average return for the S&P 500 in October during presidential election years has been approximately -0.9%, making it the worst month of the year. The accompanying table shows the eleven best nine-month year-to-date returns for the S&P 500 since 1950. (As the data shows, 2024 is in the top ten.)
S&P 500® Index best nine-month year-to-date performance since 1950
|
Year to date through September |
October |
4Q |
Full calendar year |
| 1987 |
33% |
-22% |
-23% |
2% |
| 1954 |
30% |
-2% |
11% |
45% |
| 1997 |
28% |
-3% |
2% |
31% |
| 1995 |
27% |
0% |
5% |
34% |
| 1989 |
26% |
-3% |
1% |
27% |
| 1958 |
25% |
3% |
10% |
38% |
| 1975 |
22% |
6% |
8% |
32% |
| 1955 |
21% |
-3% |
4% |
26% |
| 2024 |
21% |
TBD |
TBD |
TBD |
| 1967 |
20% |
-3% |
0% |
20% |
| 2019 |
19% |
2% |
9% |
29% |
Source: Factset, Nationwide Investment Management Group
Despite the exceptional year-to-date performance during these years, October’s performance has been quite variable. 1987 was bad because of October 19, or “Black Monday”—still the worst day ever for the S&P 500 in percentage terms, with a drop of over 20% in a single trading session. However, the good news is that November and December have historically performed well, especially in election years, as the uncertainty around the election outcome eventually dissipates.
Signs, statistics, and seasonal trends often bombard investors. The ensuing cacophony of bullish and bearish voices can be quite confusing. However, for those with a long-term horizon and a solid financial plan, the rewards can be substantial. Despite warnings that September would bring market losses, the S&P 500 had its best start to the first nine months of the year, since 1997 through the third quarter. This serves as a powerful reminder of the wisdom of staying invested over time, rather than attempting to time the market.
