Are Stocks Headed for a Downfall in the Last Quarter?

 Investment.Sensei
 
  Investment.Sensei
 
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•  Oct 01 2023
 

In the world of trading, it's a well-known axiom that data never deceives. Over the past three decades, historical data consistently highlights the bullish nature of October, November, and December. To put it in perspective, when mushroom picking season arrives in these months, historical averages reveal potential gains of nearly 2% in the stock markets.

For stock traders, the year-end landscape brings about several factors that historically contribute to a bullish trend. Portfolio rebalancing, the year-end effect, improved market sentiment, robust corporate results, and the anticipation of increased spending during the festive Christmas season all play pivotal roles in driving the historically bullish performance during the last months of the year.

Following a strong start in the stock markets during the first half of the year, our outlook for the year's end isn't optimistic. We anticipate ongoing concerns about inflation, which will remain a source of worry for both central banks and investors, potentially preventing the attainment of new highs. Should the delay in economic moderation persist, it could also sustain pressure on interest rates.

Oil Prices Surge 3% as China Boosts Demand

Analyzing responses from 60% of investment managers in the survey, it becomes evident that a positive year-end outcome hinges significantly on the prospect of energy prices easing inflation and allowing central banks to adopt a more accommodative stance. Unfortunately, at present, this prospect appears to lack short-term sustainability.

This week witnessed a 3% surge in oil prices, bringing them back to levels seen in November 2022. These price gains align with the ongoing upward trajectory, primarily driven by output cuts approved by OPEC and Russia. Concurrently, the resurgence of China's economy and the subsequent surge in demand are bolstering the crude market. Notably, institutions like Bank of America have even raised their target price for the commodity to $96.

Despite less-than-rosy predictions from the surveyed managers and analysts, the upcoming season, marked by Halloween and the more hopeful expectations for Christmas shopping, holds promise. For those banking on macroeconomic data to drive the stock markets until year-end, there's still room for optimism. Notably, the performance on Black Friday and Cyber Monday could serve as a potential catalyst for bullish investors who remain steadfast in their outlook.

While September and the initial part of October historically pose challenges for stock market investors, a notable shift often occurs thereafter, particularly in years marked by positive profitability leading up to this point. As the year draws to a close, typical end-of-year investment flows tend to favor assets that have demonstrated strong performance, compelling fund managers to adjust their positions accordingly. This scenario could potentially provide an attractive entry opportunity in the weeks ahead.

Moreover, it's essential to bear in mind that stock market valuations continue to be appealing when measured against their historical averages, as the saying goes.

Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.

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