Strong 4th Quarter, Election Year Supports the Case for a Strong Q1

Unless something dramatically changes in the final few days of 2019, the 4th quarter for equity market performance will be one to write home about. The S&P 500 is currently on track to deliver about a 9% price return, which would be the second best quarterly performance in the last five and a half years. This momentum surge has implications as we move into the 1st quarter of 2020 and especially so since 2020 is an election year. While we may yet get a correction to work off some of the equity market’s excess, history suggests the odds favor another out-sized quarter of performance in the 1st quarter of 2020.

My 1st table here simply shows the average and median price performance for the S&P 500 going all the way back to 1928. I also show the percent of positive performance outcomes in all 1st quarters. These numbers aren’t particularly impressive. The average and median price performance was about 2% and the percent of positive outcomes was only about 60%.

When we add in the element of an election year the picture doesn’t really improve all that much. Of these 22 instances, the average 1st quarter performance in an election year dropped to just 1.1% even as the median improved to 4%. But the percent of positive outcomes remained at around 60%.