The S&P 500’s price action in September has been true to its reputation, asserts Sam Stovall in The Outlook, CFRA Research's flagship newsletter; the chief financial investment strategist is also a  participant in The MoneyShow Orlando, October 30 to November 1. Register here.

Historically, September is one of two months to post an average decline since WWII and the only month to fall more frequently than it rose.

The 500’s month-to-date (MTD) decline of 8.0% through September 29 is the deepest since 2008, and the volatility has been more than 2.5x its long-term average. But if you thought September’s volatility was bad, just wait until October, which has typically been 36% more volatile than the average of the other 11 months of the year.

Yet, seasonality and the presidential cycle offer hope that the equity markets may rally through year end. Despite the volatility, October has traditionally seen the S&P 500 record an above-average monthly gain, followed by strengthening returns (and rising frequencies of price advances) for November and December.

What’s more, the Q4 of midterm election years and Q1 of the third year have historically been the two strongest quarters of the 16-quarter presidential cycle, recording price increases of 6.4% and 6.9%, respectively, along with posting 84% and 89% frequencies of advance.

However, bear markets have had a tendency to alter history. Of the 14 bear market years since 1946 in which a bottom had not been found by the end of September, the S&P 500 posted only a 50% frequency of rising in either October or Q4. One positive note is that five of these bear markets ended in October.

Should seasonality and the presidential cycle prevail, investors have much to cheer about. Specifically, all sizes, styles, and sectors gained in price, along with 89% of the S&P 500 sub-industries that participated in at least six Q4s of midterm election years.

Representative companies from this list of S&P 500 sub-industries with the best Q4 returns are: Applied Materials Inc. (AMAT), Omnicom Group Inc. (OMC), The TJX Cos. Inc. (TJX), The Home Depot Inc. (HD), Cisco Systems Inc. (CSCO), United Parcel Service Inc. (UPS), Avery Dennison Corp. (AVY), and Accenture plc (ACN).

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