The Federal Reserve raised interest rates on Wednesday for the first time since 2023, and the S&P 500 (SNPINDEX:^GSPC) finished that session around 7,550 — still up about 10% for the year, but about 3% below the record high it set in mid-August.
In other words, investors head toward October with a fresh reason to worry. And yet the calendar is about to turn to what has historically been the market’s best stretch of the year.
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Since 1985, the S&P 500 rose between the end of September and the end of December in 34 of 41 years, with an average fourth-quarter gain of about 4.4%. No other quarter matches it.
Should an investor heading into October do anything about that?
Image source: Getty Images.
The strongest quarter
The pattern isn’t new, and it isn’t a quirk of one lucky stretch. Measured from each September’s final close to December’s, the fourth quarter has been the S&P 500’s best for decades. Since 1950, the index finished the quarter higher in 61 of 76 years (80% of the time), with an average gain of about 4.2%. The first and second quarters each averaged about 2% over that stretch, and the third quarter less than 1%. And the typical fourth quarter was even better than the average suggests, with a median gain of about 6% since 1985, because a few terrible years drag the average down.
This year’s setup doesn’t argue against the pattern, either. Since 1950, the index has entered the fourth quarter up 10% or more for the year 31 times, and it finished those quarters higher in 26 of them. Momentum, in my view, hasn’t historically been a reason to sell.
As of Wednesday’s close, 2026 is tracking to join that group.
When the quarter misses, it misses big
The S&P 500 has finished the fourth quarter lower seven times since 1985. Four of those declines (in 1994, 2000, 2007, and 2012) were single-digit dips, the kind long-term investors barely remember.
The other three were another story. The fourth quarter of 1987, which contained that October’s crash, cost the index about 23%. The fourth quarter of 2008 arrived in the depths of the financial crisis and cost about 23% as well. And the fourth quarter of 2018 fell about 14%.
Notice what the big three have in common: none of them failed because of the calendar. Each failed because something large broke — a one-day crash, a credit crisis, a Federal Reserve tightening into year-end.
