Equities have a reputation to uphold as the fourth quarter–historically the market’s strongest–kicks off Monday in the wake of an unseasonably strong September. The coming week, meanwhile, offers plenty of high-profile data that could set the early tone.
“History has shown that the fourth quarter has frequently been kind to equities,” said Ryan Detrick, senior market strategist at LPL Financial Research, with the holiday months of November and December usually turning in strong performances.
Since 1950, the S&P 500 has gained 3.9% on average in the fourth quarter, advancing 79.1% of the time, the data show.
Then again, September has produced, on average, the worst monthly performance of the year. Stocks easily ignored that seasonal headwind this year, rallying to records. That is actually even more encouraging for bulls, Detrick said, noting that when the S&P 500 is up more than 10% year-to-date heading into the fourth quarter and makes a new high in September, the returns have been even better than the average, up 5.9% and boating positive returns in 11 out of 12 years.
LPL isn’t looking for a 6% jump in the fourth quarter, but the data suggest the chances of a major selloff are “rather slim,” he said.
Meanwhile, investors will be looking to the coming week’s data flow, including the September jobs report due on Friday, for clues while also bracing for the start of earnings season.
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“We expect equities to be generally rangebound next week and into third quarter earnings season in anticipation of results and updated guidance,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.
He added that “while our outlook remains constructive, risks remain. On balance, equities have become a buy-high, sell-higher market with the popular broad-based indices near all-time highs and valuation levels elevated.”
Also read: October could determine whether stocks have a great of middling move over the coming year.
The Dow Jones Industrial Average and S&P 500 recorded their sixth monthly gain in a row last week, jumping 2.1% and 1.9% on the month, respectively, according to FactSet. The S&P even rose to a record of 2,519 late Friday.
The more technology-focused Nasdaq Composite also ended the week at a record of 6,495.96, marking its 50th record close of 2017. It gained 1.1% on the week, and 1% on the month.
The past week was also marked by the release of a more detailed outline of President Donald Trump tax reform plan, which will continue to be a focus of investors.
Even though investor expectations for a December interest rate increase by the Federal Reserve got a boost after Chairwoman Janet Yellen said on Tuesday that policy makers “should also be wary of moving too gradually” in the effort to normalize rates, every additional piece of the data puzzle remains important.
The week ahead is packed with Federal Reserve speakers, whose words could rattle markets. Dallas Fed President Robert Kaplan, who is a voter on the Federal Open Market Committee, kicks things on Monday. Other events to watch include Yellen’s opening remarks at a conference on community banking at the St. Louis Fed on Wednesday.
Meanwhile, durable goods order and purchasing managers index readings are also due next week, which will serve as indicators for global demand and growth, as well as a driver for commodity prices, according to Maxwell Gold, investment strategist at ETF Securities.