Tech stock gains this big imply a strong 2019 stock market finish

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Here's why the Nasdaq signals a strong finish to the year
Key Points
  • The Nasdaq Composite Index generated a return over 20% through the first three quarters of 2019.
  • Apple, Microsoft and Facebook each delivered gains over 35% for the market-cap weighted index.
  • Gains of this size in tech stocks have occurred seven times since 1990, and the historical results are encouraging.

Despite recent market volatility, stocks have still performed well this year. The Nasdaq Composite was the top performer of the three major indices. Over the first three quarters of 2019, the tech stock-heavy U.S. stock market benchmark jumped over 20%. That's been a bullish indicator for the market most of the times it has happened in previous years back to 1990.

The market cap-weighted Nasdaq index got a boost from the likes of Apple, Microsoft and Facebook. They each logged gains of over 35% in that period. Since 1990, the Nasdaq Composite has jumped at least 20% in the first nine months of the year on seven other occasions, and according to data by hedge fund analytics tool Kensho, these outsized gains point to a strong end to the year.

The Nasdaq tends to add another 10% in the final quarter of the year, trading positively 86% of the time. The Dow Jones Industrial Average and S&P 500 Index also perform well, each up another 8%. While the S&P 500 return is slightly below the Nasdaq's, it has a perfect record of positive returns over those past seven instances.

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VIDEO1:5201:52
The one reason to remain bullish on stocks in the fourth quarter
Key Points
  • Recession red flags have the markets on edge, with the ISM manufacturing index reaching its lowest reading since 2009.
  • But over the past decade, the fourth quarter of the year has actually been the best for the stock market, with the Dow, S&P 500 and Nasdaq up at least 4% on average, and the financials, industrials and materials sectors posting average gains of more than 6%.