The year 2026 has been anything but normal for the stock market, with September currently up in what is usually the worst-performing month for the S&P 500, as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY). A market expert shares what could be in the cards for investors over the final three months of the year.
Market Uncertainties Ahead
Freedom Capital Markets Chief Market Strategist Jay Woods cautions that there are still several items investors should be worried about or at least pay attention to in the final three months of the year, which is historically the best-performing quarter.
"Favorable seasonality does not mean investors can put their feet up until New Year’s Eve," Woods said in a weekly newsletter.
The market expert names midterm election uncertainty, Federal Reserve uncertainty, geopolitical concerns and resistance to the AI buildout as items to worry about.
"Despite all the uncertainty, the market continues to chug along."
Woods said the S&P 500 gaped out of its neutral range last week and went higher, closing in on all-time highs. The market expert said the bulls are currently in charge, which will continue if the technology sector keeps leading.
An earnings report from Micron Technology (NASDAQ:MU) is among the key items this week that could determine how September ends and how the new quarter begins, Woods said.
October & Q4 Trends
Woods reminds investors in the newsletter that September is historically the worst-performing month for the S&P 500.
"In Q4, the calendar flips quite convincingly," Woods said.
The market expert shares data dating back to 1950 that shows fourth-quarter gains average 4.2% for the S&P 500. This comes with average gains of 0.9%, 1.9% and 1.4% in October, November and December, respectively.
The other three quarters average 2.1%, 2.1% and 0.8% respectively over the same time period.
"So historically, the market has gone from its weakest month directly into its strongest quarter. Not a bad handoff."
Woods shares that midterm election years are even better historically. The month of October has averaged 3.0% gains during midterm years since 1950, while November has averaged gains of 2.7% during midterm years over the same time period.
While the fourth quarter is historically strong, Woods says October is the most volatile month of the second half of the year, creating a potential non-smooth ride through the end of the year. Woods cautions that October has also seen some of the "market’s most memorable moments of panic" in past history, including several bear markets or major corrections.
"October has a habit of making investors earn the reward. The roadmap into year-end is favorable, but as always, it will not be a straight line. Earnings, rates, geopolitics and the election will determine just how bumpy that road becomes."
Woods names the industrials, financials and technology sectors as those that historically perform the best in the fourth quarter as areas for investors to watch.
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