The Stock Market's Best Quarter of the Year Is About to Start. The S&P 500 Has Risen in 34 of the Last 41.

The Federal Reserve raised interest rates on Wednesday for the first time since 2023, and the S&P 500 (SNPINDEX:^GSPC) finished that session around 7,550 -- still up about 10% for the year, but about 3% below the record high it set in mid-August.

In other words, investors head toward October with a fresh reason to worry. And yet the calendar is about to turn to what has historically been the market's best stretch of the year.

Since 1985, the S&P 500 rose between the end of September and the end of December in 34 of 41 years, with an average fourth-quarter gain of about 4.4%. No other quarter matches it.

Should an investor heading into October do anything about that?

Image source: Getty Images.

The strongest quarter

The pattern isn't new, and it isn't a quirk of one lucky stretch. Measured from each September's final close to December's, the fourth quarter has been the S&P 500's best for decades. Since 1950, the index finished the quarter higher in 61 of 76 years (80% of the time), with an average gain of about 4.2%. The first and second quarters each averaged about 2% over that stretch, and the third quarter less than 1%. And the typical fourth quarter was even better than the average suggests, with a median gain of about 6% since 1985, because a few terrible years drag the average down.

This year's setup doesn't argue against the pattern, either. Since 1950, the index has entered the fourth quarter up 10% or more for the year 31 times, and it finished those quarters higher in 26 of them. Momentum, in my view, hasn't historically been a reason to sell.

As of Wednesday's close, 2026 is tracking to join that group.

When the quarter misses, it misses big

The S&P 500 has finished the fourth quarter lower seven times since 1985. Four of those declines (in 1994, 2000, 2007, and 2012) were single-digit dips, the kind long-term investors barely remember.

The other three were another story. The fourth quarter of 1987, which contained that October's crash, cost the index about 23%. The fourth quarter of 2008 arrived in the depths of the financial crisis and cost about 23% as well. And the fourth quarter of 2018 fell about 14%.

Notice what the big three have in common: none of them failed because of the calendar. Each failed because something large broke -- a one-day crash, a credit crisis, a Federal Reserve tightening into year-end.

Notably, the index entered the fourth quarter of 1987 up more than 30% for the year. Strong momentum didn't help when it mattered most.

What should investors change?

The 2018 case is the one to keep in mind this year, because the ingredients look similar. On Wednesday, the Fed raised its benchmark rate to a range of 3.75% to 4%, its first increase since 2023, and said inflation remains elevated. Its updated projections also left room for another increase before year-end.

The last time the fourth quarter went badly wrong, the Fed was likewise raising rates as the year closed, including an increase in December 2018, delivered late in that quarter's slide. That quarter was especially hard on technology companies. The Nasdaq Composite (NASDAQINDEX:^IXIC) fell about 17% in those three months.

Of course, the 2018 decline had more than one cause. But a tightening central bank sat near the middle of it, and the same variable hangs over the quarter that starts on Oct. 1. If the Fed follows through with another increase before year-end, this fourth quarter could face the same kind of pressure.

Even so, I wouldn't move money around because of a seasonal record. The history is a set of odds, about four wins in five -- never a promise.

After all, the only way investors could ever collect the 34 winning quarters was by staying invested when they arrived, and the seven losing quarters were arguably unpredictable in real time.

Nor would I read a verdict on the market's valuation into the pattern. Stocks don't get cheaper just because a historically strong quarter is starting.

The S&P 500 enters this October at more than 25 times earnings, well above its long-run average. A good quarter, if it comes, starts from that price.

So, is the market's best quarter about to start? Probably, if the last 76 years are any guide. But that's just a guess. And for investors already in the market, I think the record is mostly a reason to do nothing. I'd keep holding through whatever the quarter brings, pricey growth stocks included. And I wouldn't time a single purchase to the calendar.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.