The Fourth Quarter Effect

September is generally regarded as the worst month in the stock market over the course of the year. But October-December is the strongest time of the year historically, and the fourth quarter consensus consistently demonstrates strong outperformance in U.S. equities.

Some key trends:

• The average Q4 return for all equity categories is the highest of the year (The S&P 500 gains 4.2%, on average).
• Small-cap stocks consistently outperform large-cap stocks as the Russell 2000 small-cap index generally does better than the Russell 1000 large-cap index.
• Small-cap growth leads with an average Q4 return of 7.6% (small-cap value ranks third at 6.5%).
• Growth stocks consistently outperform value stocks across all market capitalizations during Q4.

This is driven by a few things.

One is the reversal of tax-loss harvesting causing selling pressure on losing stocks to ease, ushering in sharp upward rebounds. Another is institutional window dressing that juices fund performance. A third is increased investor risk appetite to allocate capital to higher-growth, higher-risk market segments where small-cap stocks are common.

The Q4 outperformance effect isn’t uniform. Small-cap and growth-oriented equities show the most significant returns.

Will it happen again? Time will tell, but we could just be getting started and we’re in what traditionally is the best quarter of the year.

Ready to apply the insights of the fourth-quarter market momentum to your retirement strategy? Visit us at our Lewes location—1520 Savannah Road, Suite 2, Lewes, DE 19958—or give us a call at 302-212-4666 to schedule your complimentary consultation. The team at Dan White & Associates brings years of experience helping retirees and soon-to-be retirees make smart moves in the final months of the year and beyond. Let’s get your plan working for you this quarter.

Visit us at: https://danwhiteandassociates.com/