The Federal Reserve raised interest rates on Wednesday for the first time in 2023, while the S&P 500 closed the session at approximately 7,550. This marks a rise of about 10% for the year, though it's about 3% below the record high reached in mid-August. As investors approach October, there are new concerns, but historically, this month signals the start of the market's best performance period.
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Since 1985, the S&P 500 has risen in 34 of the last 41 years from the end of September to the end of December, with an average gain of around 4.4%. In contrast, no other quarter has consistently outperformed this stretch. An examination of past performance reveals that the index has concluded the fourth quarter higher in 61 out of 76 years since 1950, equating to an 80% success rate, with an average gain of approximately 4.2%. In comparison, the first and second quarters each averaged about 2%, and the third quarter averaged less than 1%. The typical fourth quarter's median gain since 1985 stands at roughly 6%, slightly elevated due to a few poor years impacting the average.
This year’s situation aligns with historical trends. Following prior years where the index started the fourth quarter up by 10% or more, it finished higher 26 out of 31 times. Despite concerns, historical patterns suggest momentum is not a reason for investors to sell. The index as of Wednesday is on track to continue this trend.
The S&P 500 has recorded declines in the fourth quarter seven times since 1985. Notably, four of those declines were minor, with only single-digit losses noted in 1994, 2000, 2007, and 2012. However, three significant downturns caused severe losses: the fourth quarter of 1987, which included the October crash, saw a drop of about 23%, the fourth quarter of 2008, which coincided with the financial crisis, also resulted in a 23% loss, and the fourth quarter of 2018 fell by approximately 14%. Importantly, these major declines were not attributed to the calendar but rather to profound systemic issues.