Don't look now, but the market is entering what's historically been a good period for investors. No, it's not McRib season, although there's a case to made that the sandwich's reappearance bodes well for stocks.
Rather, investors will be glad to know that October kicks off what is typically a good three months for stocks, following a month in September that historically tends to be rough. And Septembers have been especially rough lately. The S&P 500 index posted September declines of 3.9% in 2020, 4.8% in 2021, 9.3% in 2022 and 4.7% in 2023.
What happens between now and the end of the year remains to be seen, but the market has rebounded by 7% or more each of the past three years.
Highlighting the last few years may feel like a small sample size, but the data goes back even further. September has been the worst performing month of the year, on average, for the S&P 500 since 1950, according to Jeffrey Hirsch, author of "The Stock Trader's Almanac."
Over the same period, the index has posted an average return of 4.2% in the final three months of the year — the highest of any quarter, according to LPL Financial. In fact, stocks have gone up in the fourth quarter 79.5% of the time — the highest success rate of any quarter.
What historical market trends mean for your money now
So does favorable fourth-quarter market history mean it's time to buy stock right now? Maybe, experts say.
As every investing document you'll ever read will say: Past performance is no guarantee of future results. Just because the market usually performs well at the end of the year doesn't mean it will this year.
"To suggest that someone trade purely off the market's seasonal tendencies is a fool's errand," says Liz Ann Sonders, managing director and chief investment strategist at Charles Schwab.
But the fact that the market tends to be up in the fourth quarter is part of a larger reality that the market tends to be up more often than not in all four quarters. Just because some headlines continue to look scary for stocks after a shaky September doesn't mean you should panic — especially if you're a long-term investor.
If historical strength in the stock market is the good news you need to stay optimistic when the stock market gets shaky, that's a good thing, says Ross Mayfield, an investment strategy analyst at Baird.
"We're turning the page into a much more favorable seasonal period," he says. "I would hate for investors to get out of the market after a couple of difficult months and miss a rally."
To be clear: That rally may not come any time soon. The market may hit the skids into the end of the year. The key for investors is to stick to your long-term plans and continue to buy periodically, regardless of what the market is doing.
No matter how the market moves, some of your investments are likely to do better than others over the short term. That's why it's also smart to periodically rebalance your portfolio to your target asset allocations by selling some of your investments that have gone up in value and buying more of the stuff that lagged, says Sonders.
If your U.S. stock holdings have gone up while your international stock holdings have lagged, for instance, you'd sell some U.S. and buy some international to bring things back into balance. (Of course, check in with your personal financial advisor before making any major adjustments to your portfolio.)
"It's a beautiful discipline because it forces investors to do a version of what we know we're supposed to do, which is buy low and sell high," she says. "With rebalancing the version is sort of, add low, trim high. It's a strategy I think is recommendable all the time."
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