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Dow stocks like Disney, Home Depot rally in the fourth quarter more than 80% of the time

  • Five Dow stocks tend to gain in the last three months of the year, according to CNBC analysis using Kensho, a quantitative tool used by hedge funds.
  • The outperformers are scattered across the health care, home improvement, technology, insurance and entertainment industries.
  • The Dow Jones industrial average overall rises an average 5 percent in the fourth quarter, the study of the last 25 years showed. But Wall Street strategists surveyed by CNBC still expect the stock market to decline slightly into year end.
  • With all these historical studies, remember past results do not guarantee future performance.
A employee at a Home Depot store in Brooklyn, New York.
Ramin Talaie | Bloomberg | Getty Images
A employee at a Home Depot store in Brooklyn, New York.

Five Dow stocks tend to gain an average 8 to 10 percent in the fourth quarter, outperforming the overall market's gains, history shows.

CNBC used Kensho, a quantitative tool used by hedge funds, to find the consistent winners in the Dow Jones industrial average between September 30 and December 31 over the last 25 years.

The Dow outperformers are scattered across the health care, home improvement, technology, insurance and entertainment industries.

UnitedHealth and Home Depot are the top performers, up nearly 10 percent on average, the Kensho analysis showed. Cisco Systems comes in third with an average gain of 9.76 percent in the fourth quarter.

Disney gains an average 8.7 percent, while Travelers rises an average 8.1 percent.

UnitedHealth, Home Depot and Disney were positive in the fourth-quarter during 80 percent or more of the last 25 years.

These gains are better than the stock market's overall tendency to rise in the fourth quarter.

The Dow climbs an average 5 percent, the S&P 500 gains an average of nearly 4.4 percent and the Nasdaq composite climbs more than 5 percent on average from October to December, according to Kensho analysis of the last 25 years.

The small-cap Russell 2000 gains an average 5.1 percent in the fourth quarter, the study showed.

To be sure, past performance is no predictor of future performance. Stocks' relentless march to all-time highs without a significant increase in economic growth raises some worries that a sharp pullback is due soon.

According to CNBC's Market Strategist Survey, the median S&P 500 year-end target forecast on Wall Street is 2,480, about 1.6 percent below the S&P's record close Friday.

The most optimistic strategist, Morgan Stanley's Mike Wilson, expects the S&P to rise 7.1 percent from Friday's close to 2,700 early next year. But once the index hits that level, Wilson told CNBC that the cyclical bear market — implying a drop of 20 percent — "could be imminent."

— CNBC's John Melloy and Patti Domm contributed to this report.

Disclosure: CNBC's parent NBCUniversal has a minority stake in Kensho.