"Q4 After U.S. Midterms Is the Right Time to Buy U.S. Stocks" [Weekend Money]

Uncertainty Eases after September FOMC Rate Hike

Fourth Quarter Gains in 78% of Nine Midterm Election Years

The market has indicated that the fourth quarter of this year, following the U.S. midterm elections, will be a favorable period to buy U.S. stocks.

Jung Jeongyeon, a researcher at Korea Investment & Securities, stated in a recent report titled “We’ve waited a long time,” that “Now is the time to buy,” adding, “You should enter the fourth quarter of a midterm election year.” Jung explained that since 1990, out of nine instances, the probability of stock gains in the fourth quarter of a midterm election year was 78%. The remaining two declines occurred in 1994 and 2018; during both periods, the U.S. interest rate hike cycle had progressed to a level where further increases became difficult.

Jung noted, “2018 was during President Donald Trump’s first term, and there was a 14% decline in the fourth quarter.” She added, “Following the first rate hike after the 2008 financial crisis in December 2015, there were eight rate increases through September 2018, and then one final hike after the midterms in December that year, bringing the cycle to a close.”

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She emphasized that this month’s regular meeting of the U.S. Federal Open Market Committee (FOMC) marks the beginning of a rate hike cycle, and since only one additional increase is expected within the year, the current cycle is different from those in previous years that led to fourth-quarter weakness.

However, she pointed out that third-quarter earnings remain a variable. With valuation pressures now reduced, 12-month forward earnings per share (EPS) estimates continue to be revised upward. “What’s important is that expectations are not overheating,” she explained. “After the second quarter earnings season, the pace of upward revisions for estimates for the third and fourth quarters of this year has slowed. As caution around the results remains high, the market’s ability to withstand shocks is relatively strong, and there is greater potential for a pronounced response to positive surprises.”

This content was produced with the assistance of AI translation services.