With summer over and fall beginning, the market may be ready to turn a new leaf—and a big, green bullish leaf at that. Over the past five years, the fourth quarter has been an especially good time to own stocks. And with managed money badly lagging the S&P 500 for 2014 as the fourth quarter kicks off on Wednesday, the market may be in for a surge of bullish bets that could drive stocks significantly higher.
“A lot of funds have underperformed the market, and as you get into the fourth quarter, you’ll definitely see a lot of performance chasing,” said MacNeil Curry, technical strategist at Bank of America Merrill Lynch. “We do tend to see a strong trend where anyone who is a buyer of risk tends to do very well in Q4 as well as in Q1—in equities in particular.”
In a recent note, Tom Lee of Fundstrat Global Advisors (formerly of JP Morgan) noted that just 6 percent of large-cap fund managers are beating their benchmark by 2.5 percent or more, which is “below the long-term average of 26 percent, and the worst performance since 1997.”