US stock market is expected to get a ‘last hurrah’ in Q4 2023

Amidst the backdrop of a resilient economy, surging inflation, and a robust labor market, the nation watched as the Federal Reserve embarked on an assertive rate-hiking campaign spanning the past year and a half. 

As 2024, also an election year, looms on the horizon, economists and analysts find themselves divided. The central question: will the economy gracefully glide into a so-called ‘soft landing,’ or will it encounter a recessionary ‘hard landing’?

This debate has spilled over into the realm of investments, with investors grappling with uncertainty over whether the US stock market can still ignite a seasonal Q4 rally. 

Adding depth to this discussion, Puru Saxena, a prominent growth stock investor, has offered insights into historical patterns of the benchmark S&P 500 stock market index during pre-election years. 

2023 stock market cycle mirroring previous pre-election years

In his October 17 post on X, Saxena posted a chart revealing how the US stock market historically performed in pre-election years.

The chart shows that in those years, the Q2 quarter was typically highlighted by overperformance. However, this peak tends to taper off during the third quarter, only to be succeeded by a resurgence in the Q4, a phase that Saxena describes as the “last hurrah.”

When it comes to the S&P 500’s actual performance in 2023, it appears that its current performance is “tracking [the] last ten pre-election years,” the analyst wrote. 

The market index is currently sitting at 4,314, up nearly 13% year-to-date. Should history repeat itself, the S&P 500 could increase its gains up to 20% by the end of 2023, which would certainly mark a “hurrah” moment for investors.

How likely is the Q4 rally?

As investors ponder the prospect of a Q4 rally mirroring historical pre-election years, the uncertainty that shrouds the stock market in 2024 remains evident. 

Multiple variables, including the trajectory of inflation, job market dynamics, and the Federal Reserve’s future monetary policy decisions, are integral to this equation. 

Additionally, the recent escalation of geopolitical tensions in the Middle East, adds yet another layer of uncertainty, as potential US involvement could diminish the allure of risk assets, including stocks. 

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