The S&P 500 is coming off its best midyear stretch since the 1950s. Now it’s a question of taking some profits or holding for a rally at year-end. – Getty Images/iStock
With the S&P 500 on pace for a 16% yearly gain already, investors find themselves at a familiar crossroads: lock in profits while they are hot, or stay greedy and bet on a typical year-end rally that could push stocks to new highs.
The S&P 500 SPX just defied one of Wall Street’s most entrenched seasonal clichés — “sell in May and go away” — with its strongest May-through-October stretch since 1950. Historically, this six-month stretch is the worst seasonal period for stocks, with an average gain of only 2.1%, according to data compiled by LPL Financials. But this time, the S&P 500 advanced 22.9% during the period, while the Dow Jones Industrial Average DJIA was up nearly 17% and the Nasdaq Composite COMP surged 36%, according to FactSet data.
History also shows that when stocks resist the “sell in May” slump with double-digit summer gains, the rally often has more room to run.
Since 1950, the S&P 500 has averaged nearly 12% from November through April in such cases, outpacing the market’s usual 7% return during its most favorable six-month window, said Adam Turnquist, chief technical strategist at LPL Financial (see chart below).
SOURCE: LPL Research, Bloomberg –
As October drew to a close, investors turned their attentions to the final two months of the year — a period that’s historically bullish — while wondering whether a year-end rally is already underway.
History suggests that the S&P 500 has shined the brightest in November and December, averaging a 3.1% gain during those two-month periods since 1945, while logging positive returns 76% of the time, said Sam Stovall, chief investment strategist at CFRA Research.
To be sure, seasonal trends do not always translate into reality and should always be viewed in the context of current market conditions. Seasonality simply reflects the broader market climate rather than the immediate setup on Wall Street — meaning stock performance through year-end doesn’t have to follow any seasonal script, LPL’s Turnquist noted.
After all, “economic conditions, earnings, geopolitics, along with fiscal, monetary and trade policy, are much bigger drivers of price action” in the stock market this year, he said.
Stovall told MarketWatch that macro forces also support the case for a year-end rally. His CFRA team continues to see stock prices advancing through the end of 2025 on “an improvement in earnings-growth expectations” combined with potentially another interest-rate cut from the Federal Reserve in December.
“We’re still looking for two Fed rate cuts in 2026, so that could also help to shore up stock prices, at least through the end of April,” he said.
The U.S. central bank last week voted to lower the target range for the federal-funds rate by a quarter of a percentage point, to a range of 3.75% and 4%, and officially announced its plan to stop shrinking its portfolio of assets beginning Dec. 1. However, Fed Chair Jerome Powell cautioned investors against assuming another rate reduction will follow in December, saying it’s “not a foregone conclusion”.
As a result, investors have scaled back expectations for a December rate cut, with fed-funds futures traders on Friday only pricing in a 69% chance of a rate reduction at the end of the year, down from 90% before the October policy meeting, according to the CME FedWatch Tool.
Of course, investors can’t ignore the political storm clouds gathering in Washington. The ongoing government shutdown — now stretching into its second month — is beginning to ripple through the economy and straining American households.
The longer the government shutdown lasts, the bigger of a potential drag it could have on consumer confidence, said Melissa Brown, managing director of applied research at SimCorp. “So far, we haven’t seen the impact, but I’ve got to imagine that eventually we are going to see the impact, as people are not getting paid or [receiving] food benefits,” she said.
U.S. stocks finished higher on Friday, while also scoring weekly and monthly gains. The S&P 500 advanced 2.3% in October, while the Dow was up 2.5% and the Nasdaq surged 4.7% for the month, according to FactSet data.
