Thulisa from EasyAssetManagement takes a closer look into the historical trends of the S&P 500's third-quarter performance and why the upcoming fourth quarter might offer a silver lining for savvy investors.
The third quarter has once again proven to be a challenging period for equity markets. This year's S&P 500 decline of nearly 5% since June is in line with a historical trend. In fact, since 1980, the third quarter is the only period where the S&P has, on average, delivered negative returns. It's a consistent pattern that investors should anticipate.
While this seasonal weakness might be disappointing, especially after a strong first half like this year's, there's a silver lining. History suggests that a strong fourth quarter often follows a lacklustre third. On average, the market has surged by 6% in the final quarter after a negative third, outperforming the typical 4.4% fourth-quarter gain.
A key driver of potential market strength is the Federal Reserve's monetary policy. Historically, easing interest rates have been a boon for stocks. Both large-cap and small-cap indices have exhibited significantly higher returns during rate-cutting cycles, particularly when the economy is not in recession. Interestingly, even when inflation is moderately high (above 3%), the market has historically responded positively to rate cuts.
This data suggests that concerns about the Fed potentially cutting rates too soon might be overblown. While economic conditions and inflation are crucial factors, the market has shown a resilience to rate cuts, even in less-than-ideal economic environments. While the third quarter has been tough, investors should maintain a long-term perspective.
The potential for a strong fourth quarter, combined with the historical benefits of rate cuts, could create opportunities for those with a well-diversified portfolio.
It's essential to remember that past performance is not indicative of future results. While history offers valuable insights, it's crucial to consider current economic conditions and other factors when making investment decisions.
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Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an external contributor as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.
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