S&P 500 investors are trained to fear the next three months — as it’s usually the weakest quarter of the year. But it’s actually an opportune time for tech stocks to keep shining.
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It turns out the Technology Select Sector SPDR ETF (XLK) rocketed 8.3%, on average, during its third quarter for the past five years, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That’s the top showing of any of the 11 S&P 500 sectors during that time.
And get this: four of the top 10 S&P 500 stocks in the third quarter in the past five years all hail from the tech sector. That’s also more than any other sector. Expertly run technology companies like Advanced Micro Devices (AMD) and Nvidia (NVDA) turn on the heat in the third quarter. AMD sports a near perfect 98 IBD Composite Rating.
Get Ready For The S&P 500’s Third Quarter
So why does the third quarter have a bad rap with investors? There’s a good reason. It’s the weakest of the four quarters of the year.
“Since World War II, the S&P 500 gained an average of only 0.6% in the third quarter, as compared with increases of 2.1% to 4% for the other quarters,” says Sam Stovall, market strategist at CFRA. “Equity investors know that the third quarter is typically the most challenging of all four quarters for the markets,” he said.
And the third quarter holds the record for the S&P 500’s worst quarterly decline of 26.1%, Stovall says. And the maximum gain in the third quarter, of 15.8%, is also the lowest among the four quarters. But there have been some stellar S&P 500 gains during the month, too.
Going back to 1995, the real estate and tech stocks are the standouts, Stovall found. Real estate posted an average third-quarter gain of 2.3%, topping technology at 1.8%.
But in the past five years, tech is the third-quarter winner. The Technology Select Sector SPDR put up an average third quarter gain of 8.3% since 2016. That tops the 6% average third-quarter gain by No. 2 sector, Industrial Select Sector (XLI). It also well surpasses the average 4.8% gain by the SPDR S&P 500 ETF (SPY) during that time.
And which S&P 500 tech stocks are the leaders?
Chip Stocks Activate The S&P 500 In The Third Quarter
What’s been the No. 1 S&P 500 stock, on average, in the third quarter. Look no further than AMD, the maker of high-end computer chips. AMD shot up 38.8%, on average, in the third quarter going back five years.
And it’s looking like analysts are looking for a big profit report from the company again in the third quarter. The company is expected to report second-quarter results on July 27. And when it does, analysts are looking for profit of 54 cents a share. If they’re right, that’s profit growth of more than 200%.
Additionally, profit in the third quarter itself is seen jumping more than 34% to 55 cents a share. Should you buy AMD stock now?
Another third-quarter technology champ is high-end graphics-chip maker Nvidia. Shares of the stock jumped 27.3%, on average, during the third quarter. And it, too, is expected to report big profit growth in the third quarter on Aug. 25. Analysts are calling for Nvidia to earn $4.10 a share in the July quarter, up more than 88%. Is this a good time to buy Nvidia stock?
So, the coming months may be more challenging compared with other parts of the year. But don’t make the mistake of assuming a “tenuous” third quarter for the S&P 500 is downbeat for all S&P 500 stocks, Stovall says.
Top S&P 500 Stocks In The Third Quarter
On average, in the past five years
| Company | Ticker | YTD % Ch. | Avg. % gain in the third quarter | Sector | Composite Rating |
|---|---|---|---|---|---|
| Advanced Micro Devices | (AMD) | 3.0% | 38.8% | Information Technology | 98 |
| Penn National Gaming | (PENN) | -13.9% | 27.9% | Consumer Discretionary | 37 |
| Nvidia | (NVDA) | 58.5% | 27.3% | Information Technology | 99 |
| Generac Holdings | (GNRC) | 88.8% | 22.3% | Industrials | 99 |
| Take-Two Interactive | (TTWO) | -16.2% | 20.7% | Communication Services | 52 |
| Enphase Energy | (ENPH) | 7.6% | 20.5% | Information Technology | 94 |
| FedEx | (FDX) | 13.5% | 18.6% | Industrials | 87 |
| Etsy | (ETSY) | 11.2% | 18.0% | Consumer Discretionary | 94 |
| Apple | (AAPL) | 7.0% | 17.5% | Information Technology | 90 |
| United Parcel Service | (UPS) | 25.5% | 17.2% | Industrials | 97 |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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