The S&P 500 is coming off its best mid-year run since the 1950s. Now it’s a matter of taking some profits or hoping for a year-end rally. – Getty Images/iStock
With the S&P 500 on track for a 16% annual gain, investors find themselves at a familiar crossroads: Lock in gains while they’re hot, or stay greedy and bet on a typical year-end rally that could propel stocks to new highs.
The S&P 500 SPX just defied one of Wall Street’s most entrenched seasonal clichés – “sell in May and walk away” – with its strongest May-October stretch since 1950. Historically, this six-month stretch is the worst seasonal period for stocks, with an average gain of just 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 rose nearly 17% and the Nasdaq Composite COMP rose 36%, according to FactSet data.
History also shows that when stocks weather the “May sales” slide with double-digit gains in the summer, the rally often has more room to continue.
Since 1950, the S&P 500 has averaged nearly 12% from November to April in such cases, outperforming the market’s typical return of 7% 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 attention to the final two months of the year – a historically bullish period – while wondering if a year-end rally was already underway.
History suggests the S&P 500 has shined brightest in November and December, averaging a 3.1% gain during those two-month periods since 1945, while posting 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 mood rather than the immediate setup on Wall Street, meaning stock performance through the end of the year 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 more important drivers of price action” in the stock market this year, he said.
Stovall told MarketWatch that macroeconomic forces also support the case for a rebound later in the year. His CFRA team continues to see stock prices advancing through the end of 2025 thanks to “an improvement in earnings growth expectations” combined with potentially another interest rate cut by the Federal Reserve in December.
“We’re still expecting two Fed rate cuts in 2026, so that could also help prop up stock prices, at least until the end of April,” he said.
See: Will the Fed cut interest rates in December? This is what the experts say.
Last week, the US central bank voted to reduce 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 reducing its asset portfolio starting December 1. However, Fed Chair Jerome Powell warned investors not to assume there will be another rate cut in December, saying it is “not a foregone conclusion.”
As a result, investors have lowered expectations for a rate cut in December, with federal funds futures traders on Friday only estimating a 69% chance of a rate cut by the end of the year, down from 90% before the October policy meeting, according to the CME FedWatch tool.
See: Here’s what a government shutdown means for the markets…and your pocketbook
Of course, investors can’t ignore the political clouds brewing in Washington. The current government shutdown, now in its second month, is beginning to impact the economy and put pressure on American households.
The longer the government shutdown lasts, the bigger the 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 have to imagine we will eventually see it since people aren’t getting paid or receiving food benefits,” he said.
U.S. stocks finished higher on Friday, while posting weekly and monthly gains. The S&P 500 advanced 2.3% in October, while the Dow Jones rose 2.5% and the Nasdaq rose 4.7% during the month, according to FactSet data.
