Breakout

History Suggests There’s Still Time to Catch the Rally, Bleier Says Stay on the Sidelines

Jeff Macke
Breakout

With the S&P 500 already 16% higher for the year and the historically volatile fourth quarter starting on Monday, it's tempting to take gains now and spend the rest of the year on the sidelines. Historically speaking, that's a bad idea.

Since 2009 the S&P has gained an average of 9% during the last 3 months of the year. Over the last 30 years, stocks have risen in Q4 24 out of 30 times for an average 7%. According to the folks at Bespoke Investment Group, stocks have been more than 10% higher through the 3rd quarter 32 times in the last 85 years. Stocks have moved higher 80% of the time in the fourth quarter of those years, averaging a gain of 2.6%, despite greater than 20% loses in the crashes of '29 and '87.

Regardless of what's happened in the past, Scott Bleier of Create Capital says would-be buyers should remain on the sidelines. Bleier pegs the start of the rally to June 4th when rumors of QE3 and ECB bond buying began picking up steam. Since then markets of all sorts of been moving higher in the face of dropping earnings estimates --a dangerous combination.

The beginning of November is when Bleier thinks the party ends. The certainty of the election results combined with the end of the fiscal year for many hedge funds and mutual funds will, in Bleier's view, take professional investors out of the picture, leaving no one but the fabled "Mom and Pop on Main Street."

Individuals buying between now and then are "buying at the top end of a three-year bull market that's long in the tooth and that is up on hopes of more free money." Whatever the catalyst, every pullback since 2009 has been a chance to buy stocks. Bleier thinks it's time for individuals to take their winners and go home.

History suggests there's more life in the old bull yet. Will this rally continue? Let us know what you think in the comment section below or visit us on Facebook.

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