ETF Trends
ETF Trends

Seasonal trends and midterm elections could help the rallying equities market and stock exchange traded funds maintain their momentum as we finish out the year.

Over the past month, the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) rose 2.2%, SPDR S&P 500 ETF (NYSEArca: SPY) gained 2.7%% and PowerShares QQQ (NasdaqGM: QQQ), which tracks the Nasdaq-100, increased 3.6%. [Epic Fail: Passive S&P 500 ETFs Crushing Actively Managed ETFs]

Looking ahead, the market is heading in to what has been historically the best three-month period for stocks since 1928, reports Patti Domm for CNBC.

“For the three months ending in January, the average return for the S&P 500 is 3.4 percent,” Paul Hickey, co-founder of Bespoke, said in the article. “The next best is June, July, August at 3.08 percent.”

Since 1950, November has been the second-best month for stocks as the S&P 500 averaged a 1.5% rise. December has historically been the best month for the index, with a 1.7% average gain. [Sticking to the U.S. With Equity ETFs]

Additionally, small-cap stocks, which lagged the broader markets for much of the year, has also picked up its pace, outperforming larger companies, with the iShares Russell 2000 ETF (NYSEArca: IWM) up 6.1% over the past month.

“It’s November, December, January, the best three consecutive months for the market, and within those special three months, you tend to get small-cap outperformance in November and December,” MacNeil Curry, global head of technical strategy at Bank of America Merrill Lynch, said in the article.

Along with traditional seasonal trends, market observers are also giddy over midterm elections, anticipating a bounce after Election Day. Specifically, strategists argue that ahead of midterm elections, investors dump stock positions due to the uncertainty, but then equities take off. Since 1934, historic data has shown that the Dow only declined four times between Election Day and year-end in the 20 midterm election years.

Additionally, with the Republicans poised to expand their house majority in the midterm elections, Samuel Stovall, equity strategist at S&P Capital IQ, points out that markets advanced in 110 of 114 years when both houses of Congress were controlled by the same party.

“Even better, investors may have forgotten that the combination of a Democratic president and a unified Republican Congress has been accompanied by the best average performance for the S&P 500 since 1945, as the S&P 500 rose an average 15.1 percent in the eight times since 1945 in which a Democratic President has been opposed by a Republican-controlled Congress,” Stovall said in a note.

SPDR S&P 500 ETF

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Tom Lydon’s clients own shares of IWM, QQQ and SPY.