Dear Clients,
I believe stocks will finish the year higher, with the S&P 500 advancing and the Magnificent Seven positioned for renewed gains after a volatile year. October could be choppy as the midterm election approaches, but I expect it to be positive overall, followed by a stronger finish as election uncertainty recedes.
The foundation of that outlook is earnings. FactSet’s September 25 report puts expected third-quarter S&P 500 earnings growth at 29.1%, up from 26.7% at the end of June. Those are estimates, but their upward revision is encouraging. I believe the coming earnings season can deliver further upside surprises, while stabilizing oil prices and easing inflation concerns improve investor confidence.
Higher interest rates and a stronger dollar can pressure profits and valuations, but earnings growth despite those pressures signals economic resilience. I believe that strength can support higher stock prices. The rate chart (Figure 1) shows positive average returns following both Fed hikes and cuts: 14.9% and 11.2%, respectively, over the next year. Higher rates have not automatically prevented gains, although these averages do not establish cause and effect.
The charts also provide three useful seasonal perspectives. First, when the S&P 500 entered October up between 10% and 20%, it finished the fourth quarter higher in 18 of 21 completed observations, or 85.7% of the time, averaging a 5.3% gain (Figure 2). Second, October has historically been the strongest month of midterm years in the supplied monthly chart (Figure 3), averaging roughly 3%, with November also strong. October can be volatile and still finish higher.
Third, the presidential-cycle chart (Figure 4) shows the historical improvement from late in the midterm year into the following year. Carson Investment Research’s separate quarterly analysis makes the point more precisely: the fourth quarter of a midterm year and the first two quarters of the following year have historically been the three best-performing quarters for the S&P 500, by average return, out of all 16 quarters in the four-year presidential cycle. Those periods correspond to Q4 2026, Q1 2027 and Q2 2027. This supports an outlook extending beyond year-end.
I expect the Magnificent Seven—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla—to contribute to the advance as earnings and business outlooks support renewed confidence. Their results will differ, and profits must still justify valuations.
Past performance does not predict future results. Renewed inflation, an oil-price spike, higher borrowing costs, dollar pressure on overseas earnings, geopolitical shocks or disappointing profits could lead stocks lower. Even with those risks, I believe the balance favors higher prices into year-end and a constructive start to 2027.
Thank you for your continued trust.
Craig Kessler
Chief Investment Officer
Views as of October 1, 2026 and subject to change. Investing involves risk, including loss of principal. Past performance does not predict future results.
Stocks Following Fed Rate Changes
Figure 1 | Average forward total returns following hikes and cuts
What the comparison tells us
The supplied chart reports positive average returns after both rate hikes and rate cuts, including one-year averages of 14.9% and 11.2%, respectively. It supports the narrower point that higher policy rates need not prevent stock gains. It does not show that rate hikes cause gains or that stocks will rise over the coming quarter.
Source: Charlie Bilello / Creative Planning, using YCharts and Federal Reserve data, October 1982–September 2026. The chart does not disclose sample counts, event overlap or treatment of incomplete forward-return windows. Returns beyond one year are cumulative as presented, not annualized. This chart does not test the effect of a stronger dollar.
Earnings source
FactSet Earnings Insight, September 25, 2026, page 1. Estimated Q3 2026 year-over-year S&P 500 earnings growth of 29.1%, versus 26.7% estimated June 30. https://www.factset.com/
Presidential cycle source
Carson Group, Here Comes the Best Month in a Midterm Year, September 29, 2026. Identifies midterm-year Q4 and pre-election-year Q1 and Q2 as the three best quarters of the four-year cycle. https://www.carsongroup.com/
Charts are reproduced as supplied, with source attribution retained. Historical averages describe the source samples and are not probabilities or return targets for this quarter. The seasonal and rate charts do not provide company-specific evidence for a Magnificent Seven rebound.
Historical Fourth Quarter Returns
Figure 2 | Fourth quarters following a 10% to 20% gain through September
Source: Carson Investment Research / FactSet, supplied chart dated September 27, 2026. The 2026 row is preliminary and explicitly notes two trading days remaining; it is not the final September return. The historical statistics cover 21 completed observations. The second supplied version repeats this history with a different preliminary 2026 figure and is omitted.
Seasonality Around Midterm Elections
Figure 3 | Average monthly returns across historical samples
Source: Carson Investment Research / YCharts, May 29, 2026; returns for 1950–2025. Midterm-year October returns average roughly 3% in the chart. A positive monthly average does not rule out sharp swings within the month.
The Four Year Presidential Cycle
Figure 4 | Historical seasonal composite
Source: Nautilus Investment Research / FactSet, April 15, 2026; 99-year composite. The historical pattern strengthens late in the midterm year and into the pre-election year. The red overlay is dated April 15 and is not current. The ranking of Q4 midterm, Q1 pre-election and Q2 pre-election as the three strongest quarters comes from Carson’s separate quarterly analysis, cited on page 2; the composite itself does not rank quarters.
All information in this presentation is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. Certain statements contained within are forward looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please consult your adviser for further information.
Opinions shared in this presentation are not intended to provide specific advice and should not be construed as recommendations for any individual. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.