The S&P 500 lost 3.3% in the third quarter after sliding nearly 5% in September.
Putting this into perspective, nothing really qualifies as out of the ordinary. Since 1950, the S&P 500 has historically declined in September 55% of the time, posting an average decline of 3.8%. September has certainly lived up to its reputation as being a weak seasonal period for stocks. The main culprits were rising interest rates and government shutdown fears.
We’re feeling the ripple effects as higher short-term interest rates flow into our daily lives—in business and consumer interest rates.
For example, would-be homebuyers saw the average 30-year fixed rate reach a 23-year high at the end of last month. Remember, the Federal Reserve (Fed) raised short-term interest rates in an effort to slow the economy and halt inflation, which we are starting to see.
Given the economic backdrop, we wouldn’t be surprised if the markets remain a bit choppy.
In addition to that, the prospect of a government shutdown looms again in the coming weeks. Overall, it’s important to stay the course, and there are plenty of reasons to be cautiously optimistic about where we’re headed:
- The labor market shows signs of moving in the right direction, with more balance between the supply and demand for workers.
- Inflation is coming down. The Fed is most likely done with its aggressive rate-hiking campaign, which is good news for investors and policymakers alike.
- The fourth quarter is historically the best quarter for the S&P 500, with average gains around 4.2%.
Underscoring these reasons for staying invested is how difficult it is to time the market, despite some of the risks at hand. Plus, opportunities in bonds are as attractive as they’ve been in decades. All in all, October can be volatile, but there’s probably no need to get spooked by bouts of higher volatility.
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