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The Strongest Period of the Year for Equities

We have just started the final quarter of the year and fortunately for US equities, that period has been one of the most wonderful times of the year.

Over the past decade, the fourth quarter has been one of the strongest periods of the year for equities.

Using data for the S&P500 tracking ETF, SPY, the final three months of the year has seen a median gain of 7.86%, with October the month of October showing a median gain of 2.73%

Expanding that research since 1993 (rather than just the last decade) from the end of September through to the end of the year we find the index has tended to trade higher through October and November, although mid-November sees some consolidation before rising into December.

Similarly, December has typically seen some reversal of the prior months’ gain, but a strong finish to the year has tended to make up for the weakness earlier in the month.

The below graph shows the average performance of the S&P500 index (using SPY data)

How did we do this? – We took the data for every day for the SPY and worked out the average gain/loss each day using a decade of data and then using data since 1993, then simply turned it into a graph. It doesn’t mean this year will do the same, but it does show a clear bias for rising stock prices at this time of year.

Going into October 2020 we also have good news from the Consumer.

70% of the US economy is made up of consumer spending, so their habits can make a significant impact. They measure consumer thinking by the monthly Consumer Confidence report.

On September 30th, the Consumer Confidence report was the biggest beat relative to expectations since November 2011 and the largest month-on-month increase since April 2003.

This is an extremely positive indicator. If the consumer is confident they are likely to spend and, being 70% of the economy, that keeps the economy strong.

We took a look at what happened in the past when we saw these large increases in Consumer Confidence and found they tend to occur either at the very end of recessions or in the earlier stages of an expansion.

Could this large increase in confidence be indicating the end of the coronavirus recession and the start of a new leg in economic expansion?

With strong consumer confidence and a strong seasonal bias, we like the look of stocks right now.

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.
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