The S&P 500 typically saves the best for last, suggests Sam Stovall, the chief investment strategist at CFRA Research in the Wall Street research firm's flagship newsletter, The Outlook.
Whether looking at all years since 1945, or just over the past 26 years, the S&P 500 recorded its highest average price change in the fourth quarter and its best frequency of advance. We think this year will be no different.
Our 12-month price target for the S&P 500 stands at 4,870, which implies a year-end 2021 level of 4,610. We see this price increase being driven by GDP growth in Q3 and Q4 at 4.0% and 6.0%, respectively, and 4.7% in 2022, helping boost S&P 500 EPS higher by 24.4% in Q3 and 20.6% in Q4, while propelling EPS by nearly 9.0% in 2022.
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What’s more, even though the Fed has signaled that tapering will start by year end, we see the 10-year yield creeping higher from the current 1.53% to 1.60% by December and hovering around 1.75% a year from now.
In addition to the S&P 500 saving its best quarterly performance until the final quarter of the year, so too did its sibling benchmarks, along with its 11 sectors. Whether looking at the large-cap S&P 500, the MidCap 400, or the SmallCap 600, as well as the Nasdaq-100 and S&P 500 Growth and Value Indices, the fourth quarter’s average return since 1995 was superior to all other quarters. What’s more, nine of the 11 sectors in the S&P 500 also recorded their highest average returns in Q4, led by financials, industrials, materials, and tech, with the laggards coming from energy, health care, real estate, and utilities.
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Indeed, only the energy and utilities sectors saw superior results in earlier quarters of the year. Finally, 98% of the 103 sub-industries with at least 20 years of returns posted positive gains in Q4. Of course, history should always be viewed as a guide and never gospel.
Representative companies from this list of S&P 1500 sub-industries with the highest Q4 average returns are: Akamai Technologies Inc. (AKAM), The Mosaic Company (MOS), MKS Instruments Inc. (MKSI), Garmin Ltd. (GRMN), Alaska Air Group Inc. (ALK), The Interpublic Group of Companies Inc. (IPG), Archer-Daniels-Midland (ADM) Company, and Cleveland Cliffs Inc. (CLF).
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