Wall Street Enters Historically Strong Fourth Quarter Amid Fed Rate Hikes

Wall Street Enters Q4 Amid Fed Rate Hikes

Last week, for the first time since 2023, the Federal Reserve raised interest rates, and possibly not for the last time this year. Consequently, investors are entering October with a fresh and additional reason for concern. Yet, history stands with the bulls—Wall Street is at the threshold of a quarter that historically represents the strongest period of the year for the market.

According to The Motley Fool, since 1985 the S&P 500 index has risen between late September and late December in 34 out of 41 years, with an average return of about 4.4%. No other quarter comes close to these performances. We can go even further back. Since 1950, the fourth quarter has been the strongest for the S&P 500: the index finished it with an increase in 61 out of 76 years, 80% of the cases, with an average return of about 4.2%. For comparison, the first and second quarters yielded an average of about 2% each, while the third quarter yielded less than 1%.

"History provides probabilities, but it does not guarantee anything." - Market Analysts

When Quarters Disappoint: Historical Drops

Since 1985, the S&P 500 has finished the final quarter of the year in decline only seven times. Four of those drops—in 1994, 2000, 2007, and 2012—were single-digit, the kind that long-term investors tend to barely remember. Three of the declines were an entirely different story. The fourth quarter of 1987, during which the famous market crash occurred, wiped out about 23% of the index.

The case of 2018 is the one worth remembering this year, as the circumstances look similar. That was the last time the fourth quarter derailed significantly. Back then, the Fed also raised interest rates toward the end of the year, including a hike in December amid the market decline. That quarter was particularly difficult for technology companies: the Nasdaq index fell by about 17% over the three months.