Despite a weaker end to the month, the equity market “melt-up” successfully navigated what has historically been a tricky month for equities, as represented by the S&P 500 in September (average returns -0.61%), closing out the month (as of September 29) with a handsome gain of over 3%. As we move toward October, this month has been far from spooky, leaning more “treat” than “trick” for equity investors. Since 1950, October has posted positive returns nearly 60% of the time, and an average gain of 0.89%, though past performance does not guarantee future results.
Seasonality Trends Supportive for Equities in October
Discerning investors may wonder if a strong September “pulls forward” October returns. However, historical data provide no evidence of this — the average return for Octobers that followed a positive September is nearly identical at 0.8%.
Examining data further out into the fourth quarter October is on average followed by even stronger average gains in November and December (often boosted by the so-called “Santa Rally.”). The fourth quarter, October–December, is the strongest three-month period of the year with a combined average return of almost 2% since 1950 and over 6% over the past five years.
Fourth Quarter is the Strongest Three-Month Period for Stocks
Year –to date, equities have staged an incredible turnaround. After early year weakness, a high-beta rally has pushed the S&P 500 up approximately +33% off the April 2025 lows. With a positive September, we appear set to close out five consecutive up months — a fairly rare and bullish signal.
Historically, this marks the 33rd instance since 1950 of a streak of five or more consecutive up months. In only 10 of the prior 32 instances has the streak finished at five months. The average one year forward return following an up streak of five months is 13%, well above the long-term average.
Looking forward from these hot streaks, in only two instances has the S&P 500 12-month return been negative (in April 1972 and June 2021) after reaching a streak of five up months, and even in the 10 instances when the streak ended at five months, the S&P 500 has never been down a year later.
For historical context, the longest ever win streak was 11 months, achieved twice: from September 1953 to July 1954 and March 1958 to January 1959. More recently, April 2017 to January 2018 saw a 10-month streak.
STAAC View
LPL’s Strategic and Tactical Asset Allocation Committee (STAAC) maintains its tactical neutral stance on equities. While we acknowledge the potential for short-term volatility, especially around geopolitical developments and Fed policy recalibration, the seasonal and technical backdrop suggest a constructive setup for Q4.
From a technical perspective, it is hard to argue with a bull market that is making new highs and is powered by cyclical leadership. However, recent overbought conditions paired with diverging market breadth suggest this melt-up could be due for some cooling off — something we would consider a potential tactical opportunity to buy the dip, especially into a seasonally strong fourth quarter.
George Smith chairs the Tactical Model Portfolio Committee, which manages LPL Financial’s multi-asset models across multiple managed account platforms.
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