Will U.S. Equities Rally to Finish the Year?

November 08, 2018

U.S. equities experienced a sharp correction last month with broad market indices erasing virtually all their year-to-date returns. The October pullback was especially jarring for investors since it followed an unusually quiet third quarter and had seemingly few changes in the economy or corporate earnings to warrant such a sell-off. Unlike the volatility seen in the first quarter of 2018, the S&P 500 didn’t record a single daily move of more than ±1% in the third quarter. During October, the S&P 500 saw a total of ten daily moves greater than ±1%, surpassing the total number seen in all of calendar year 2017. The recent resurgence of equity volatility coupled with the anticipation of midterm election results has created uncertainty in the outlook for risk assets in the near-term.

While stock prices are ultimately affected by a variety of factors, the fourth quarter has historically yielded the highest percentage of positive market returns compared to other quarters. In addition, market returns following midterm elections tend to be quite strong. Examining S&P 500 returns during midterm election years dating back to 1946, we see that the S&P 500 has never ended the year below its October closing low. The average return over these last 18 midterm elections is +10.6%. Although the sample size for post midterm elections is small, it is reassuring to know that we are in a historically strong period for equity markets.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.