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The Best Time for the Markets
The third quarter of 2026 was difficult for growth stocks but a real bonanza for Dividend stocks (more on that later on). However, we need to look ahead.
I have mentioned this over and over again in the past, that according to my research: in the sixteen-election quarter cycle, the best quarter for stocks, as defined by the S&P 500 (SPX) is the fourth quarter of the midterm election year and the first quarter of the following year.
The four-year cycle is, chronologically:
- The Year Preceding the Presidential Election (2019 most recent)
- The Presidential Election Year Election (2020 most recent)
- The Year Following the Presidential Election (2021 most recent)
- The Midterm Election Year (Election (2022 most recent)
According to my data which dates back to 1950 and was last updated through 2022 (I usually update in the four-year cycle commencing in the year before the Presidential Election and won’t update again until after 2026 is in the books). Here is the average price return for the SPX during each of the sixteen quarters:
1q | 2q | 3q | 4q | ||
Before Election | 6.75% | 5.45% | -0.37% | 2.31% | |
Pres Election | 0.90% | 2.12% | 1.51% | 1.98% | |
After Election | -0.13% | -2.91% | 0.34% | 3.42% | |
Mid-term Elections | 1.34% | -1.99% | 0.12% | 7.79% | |
I drew a solid box around the 4th quarter of the Midterm election year and the quarter immediately following that, the 1st quarter of the Pre-presidential Election year to highlight the positive anomalies. We have just entered that historically bullish six-month period. In investing parlance, we have positive Alpha for those two quarters.
The two times that this phenomenon did not deliver positive returns were 4q1978 to 1q1979 (thank you Jimmy Carter) and 4q2018 to 1q2019 (thank you to the clueless Fed Chair Jerome Powell. It is hard to believe that the suffering of the Powell Era began that long ago). On both occasions the decline was a total of less than 1% with declines in 4q followed by an upswing in 1q.
How I Am Playing the Phenomenon
In our Growth Portfolio I raised plenty of cash in the 3rd Quarter. I am going to begin to put that to work in Index Exchange Traded Funds. As I recognize some single stock opportunities, I will move from those ETFs into individual stocks. That way we can take advantage of what we refer to as Beta (correlation with the SPX) until some single stock ideas come along to generate Alpha. While I want to focus on Growth, I want to try to limit further exposure to AI (or is it now SI?) and seek out other sectors, in technology and otherwise.
It is not that Growth was doing so poorly, as it was up just over 7% September Year-to-date (unaudited; including dividends less our fees). However, a poor 3rd quarter cut the year’s gains at the end of June by nearly 50%.
As for the Dividend portfolio, I might trim a little here and there but I am very happy with our holdings, especially having had the foresight to invest in midstream energy – refiners, pipelines and transportation, especially tankers – which have helped to return just over 20% for that portfolio (unaudited, including dividends less our fees) through the end of September. Let me throw a name at you – Marathon Petroleum (MPC).
Taken together – Growth and Dividend – this confirms what I have been preaching all along; namely that a balanced approach to investing is best for investors.
What has been frustrating this year is our Consumer Discretionary Portfolio. We are down single digits percentage wise but are outperforming our benchmark State Street Consumer Discretionary Select Sector SPDR ETF (XLY). Carly and I have taken several hard looks at our Portfolio and can only conclude that it is just a tough sector this year given the Federal Reserve and economic conditions. We will continue to monitor daily, as we do all our strategies.
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long MPC & SPY - although positions can change at any time. The mention of stocks are not recommendations and may not be suitable investments for your individual situation.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.
For more information on investing with LakeView Asset Management, LLC call us at 702-749-9343 or request more information by clicking on the contact button on the top right-hand corner of the website or by emailing Scott at scott@lakeviewasset.com or Carly at carly@lakeviewasset.com. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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