History Shows that Investors Shouldn’t Avoid Q4

Investors’ short-term memory says to avoid the fourth quarter after last year’s Q4 sell-offs that saw the major indexes reach a bottom-of-the-barrel low on Christmas Eve. However, the fourth quarter has history on its side according to market data analytics firm Kensho.

For the past 10 years, the fourth quarter has been the highest yielding quarter for stocks. Per a CNBC report, the “S&P 500 Index has averaged a 4% gain in the final three months of the year over the past decade, according to a CNBC analysis of Kensho, a market data analysis platform. The S&P 500 had traded positively 80% of the time. The Dow Jones Industrial Average had added 5% in fourth quarters over the past 10 years, trading positive 80% of the time.”

The data comes at a time when analysts are expecting a volatile October. However, it could present investors with a buy-the-dip opportunity that could pay off as Q4 wears on.

That excludes the fourth quarter 2018, when stocks were battered and made the biggest contribution to a year in which stocks posted their worst performance in a decade.

“The S&P 500 and Dow plunged 13.97% and 11.8% in Q4 2018, respectively, their worst performances since 2011,” the report noted. “The Nasdaq plunged 17.5% in the period, its biggest quarterly fall since 2008. All three indexes posted losses of near-9% in December 2018 alone.”

With three quarters in the books for 2019, the S&P 500 is actually up 19%, which represents its best performance through the first three quarters of a calendar year since 1997.

With possibly more volatility expected in the fourth quarter, it helps to get tactical when it comes to using exchange-traded funds (ETFs). For the self-styled ETF tactician, one of the favorite tools in their arsenal is the SPDR S&P 500 ETF (NYSEArca: SPY).

SPY doesn’t merely lend itself to the fly-by-night trader who feeds off the adrenaline rush of getting in and out of securities with requisite speed. It’s also flush with investors who are in it for the long haul–the buy-and-hold investor who values SPY for its liquidity in the markets, among other things.

Key features of SPY:

  • The SPDR® S&P 500® ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index (the “Index”)
  • The S&P 500 Index is a diversified large cap U.S. index that holds companies across all eleven GICS sectors
  • Launched in January 1993, SPY was the very first exchange traded fund listed in the United States

For more market trends, visit ETF Trends.