CFRA chief investment strategist Sam Stovall notes that the fourth quarter of a midterm year delivers average gains of roughly 5.5%, while recommending that investors maintain their positions in the previous quarter’s top performers.
During an appearance on CNBC’s “The Exchange” on Monday, he discussed market conditions as equities faced mounting pressure. The S&P 500 finished that day’s trading down 0.77% at 7,683.69 amid rising Treasury yields.
Stovall Says Midterm Year Q4 Favors Q3’s Winners
According to Stovall, the S&P 500 historically climbs about 5.5% during Q4 in midterm election years. Following a positive third quarter, these periods experienced upward movement 75% of the time.
CNBC figures indicate that the current year meets these criteria, with the index gaining over 2% for the quarter and more than 12% throughout 2026, ahead of the quarter’s close on Wednesday.
Because midterm years usually feature disappointing second and third quarters, Stovall noted that market participants questioned if the current rally had cannibalized fourth-quarter gains. He dispelled that notion.
Instead, his recommendation is to stick with the period’s strongest performers.
“following a strong Q3, you want to let your winners ride.”
Sam Stovall, chief investment strategist at CFRA, told CNBC.
Conversely, a weak third quarter calls for a different strategy. Stovall explained that investors should pivot to purchasing the three worst-performing sectors under those conditions.
Low-Debt Sectors Drove the Third Quarter
Stovall connected this market leadership to corporate balance sheets. Sectors boasting the smallest ratios of net debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) demonstrated the strongest resilience, prompting investors to shift capital toward them amid anxieties over escalating interest rates.
Leading the pack were energy, healthcare, technology, and communication services. Conversely, the lagging sectors consisted of industrials, real estate, and utilities.
Technology alone accounts for nearly 40% of the S&P 500’s overall market capitalization, as pointed out by Stovall, with communication services pushing that combined share to roughly 50%.
He added that elevated oil prices simultaneously increase the worth of established reserves for companies like Exxon and Chevron.
Climbing interest rates and oil costs have weighed heavily on equities. Zacks reported that the 10-year Treasury yield briefly touched 5.23% on Friday, marking its highest point since June 2007, up from 3.99% in late February as highlighted by the interview host.
Stovall pointed out that first-quarter performance had already highlighted inflation, interest rates, and oil prices as primary worries for 2026. Nevertheless, he suggested that leadership among low-debt companies could persist into Q4 in the absence of near-term relief.