Fourth Quarter is Key

The fourth quarter may hold the key to the year for stock market performance. The restoration of a balance between the parties in Washington may be welcomed by markets. The market’s reaction to mid-term elections has nearly always been positive, even when the balance of power has shifted in one or both houses of Congress — as we expect this year with the Republicans having a good chance of taking the House on November 2. The average gain for the S&P 500 in the fourth quarter of a mid-term election year is a solid 8% (see the Weekly Market Commentary from August 2 entitled “Mid-Term Market Moves” for more information). This mid-quarter policy driver may be potent enough to turn sentiment around and produce gains for the year in line with our forecast for modest single-digit gains.

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