S&P 500 Rides 5-Month Winning Streak Into the Seasonal Golden Window Q4

TradingKey - For months, U.S. equity investors have largely shrugged off headwinds from Trump’s tariffs, economic slowdown concerns, and seasonal weakness. With only one trading day left in the third quarter, the S&P 500 is on track for its fifth consecutive monthly gain. Having weathered the historically weak Q3, Wall Street now turns to what Bank of America calls “the most wonderful time of the year for equities” — the fourth quarter.

As of September 29, the S&P 500 closed at 6,661.21, up 13.25% year-to-date. Despite the so-called “September Effect,” the index gained nearly 4% in September alone, with a quarterly rise of over 7%. The Nasdaq Composite is up 17% YTD, with an 11% gain over the past three months.

SPDR S&P 500 ETF, Source: TradingKey

A confluence of factors has driven the strong rebound since April’s “Liberation Day” market plunge, including AI-driven investment momentum, Fed rate cut expectations, Resilient corporate earnings, slowing but stable economic growth and easing fears that Trump’s tariff risks would be resolved through negotiations.

While caution remains — especially around stretched valuations — Wall Street is embracing the traditional strength of Q4.

Historical Strength: The “Best Quarter” for Stocks

Bespoke Investment Group highlights that the S&P 500 has not only surged in 2025 but is now entering the strongest seasonal period in its history — Q4.

Since the index’s inception in 1928:

• Average quarterly return: +2.1%
• Average Q4 return: +2.9% — the highest of all quarters

Even more compelling, when the S&P 500 posts gains in the first three quarters, Q4 tends to be even stronger:

• Average Q4 return: +4.4%
• Positive returns in 83.1% of time

This “Strongest Q4” pattern has been particularly pronounced over the past three decades.

Bank of America Research confirms this seasonal trend:

• S&P 500: Avg. Q4 return of +2.84%, positive in 74% of years
• Nasdaq 100: Avg. Q4 return of +6.16%, up in 69% of years
• Russell 2000: Avg. Q4 return of +4.58%, positive in 76% of years

The firm calls Q4 “the most wonderful time of the year for equities,” with performance varying by month:

“October sideways, Nov better, Dec especially favorable.”

This culminates in the well-known “Santa rally” — a late-year surge often seen in December.

Why Q4 Shines: Seasonal Tailwinds

Historically strong Q4 performance is attributed to:

• Year-end bonus inflows boosting retail investment
• Institutional portfolio rebalancing and cash deployment
• Holiday season optimism
• Positive outlook for the coming year

October Volatility Ahead?

Despite the bullish backdrop, Wall Street is bracing for potential volatility as Q4 begins.According to CFRA, since World War II, October is the most volatile month for the S&P 500:

• Average volatility 33.2% higher than the other 11 months
• January, the second most volatile, is only 16.1% higher

This spike is often linked to “window dressing” — fund managers selling underperformers and buying top performers before quarterly reports to improve the appearance of their portfolios.

RaeAnn Mitrione, Partner at Callan Family Office, said:

“I wouldn’t be surprised to see stocks pull back soon and volatility creep higher in October, given stretched equity valuations after such a stellar run for stocks in recent months.”

She added that fourth-quarter prices are unlikely to keep rising at this pace.