Tech Stocks Lead the Market's Two-Month Rally

It’s the last trading day of October, and it has been another good month for the markets, with the major indices up 3 of the last 4 months (Dow up 3.0%, S&P up 3.7%, Nasdaq up 6.1% this month).

A Significant 2-Month Rally

Today also essentially marks 2 months since the rally in the markets began back on August 31, and it has been quite a rally with the S&P up nearly 13% in that time thanks in large part to expectations of forthcoming quantitative easing programs from the Fed.

It Has Been a Fairly Steady Rise

In the 43 trading days since the start of the rally, the S&P has been up more than 60% of the time. But in the 16 times it has declined, the S&P has averaged a decline of just 0.5%, and has fallen more than 1% only twice. In comparison, the S&P has been more than 1% 7 times during that time and has posted an average gain of 0.7% on the days that it has been up.

The 2-month rally may bode well for markets the rest of the year, given the midterm elections that are being held on Tuesday. According to S&P Chief Investment Strategist Sam Stovall, when the S&P 500 has posted gains in September and October of a midterm election year, the S&P is up 1.2% on average in November. More encouraging, in December, Stovall notes that the S&P has risen a stronger 4% on average.

The standout performer during the current 2-month rally has been tech stocks. The sector has soared 19% as a whole, but take a look at the performance of a number of the big cap tech stocks leading the way since the end of August:

In addition to tech companies, the rally has been led mostly by cyclical stocks: consumer discretionary, commodity stocks, industrials, and airlines have all outperformed the broader markets. Here’s a recap of how the major indices and sectors have performed since August 31.

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