The S&P 500 index is positioned in a historical "sweet spot" for fourth-quarter performance, according to Ryan Detrick, Chief Market Strategist at Carson Group. With the index up 12.90% year to date as of late September 25, it falls within the 10%-20% range that has historically preceded above-average Q4 returns.

Historical precedents point to gains

Data from Carson Investment Research indicates that when the S&P 500 rises between 10% and 20% through the end of the third quarter, the index has posted positive fourth-quarter returns in 18 out of 21 historical setups since 1950. This equates to an 85.7% positive rate. The average fourth-quarter return under these specific conditions is 5.3%.

Detrick highlighted that recent fourth-quarter performance has been "extremely strong," with the S&P 500 finishing higher in 12 of the past 13 years. The sole negative fourth quarter during this period occurred in 2018, when the index fell 14.0%, a period Detrick described as "the crash of 2018" and noted as the last midterm year under President Trump.

Comparative performance metrics

The following table compares the specific "sweet spot" conditions against broader historical averages and recent trends:

For all years since 1950, the average fourth-quarter gain for the S&P 500 is 4.2%, with positive returns occurring 80.3% of the time. The current year-to-date performance places the market in the upper tier of historical probability for year-end gains.

Market drivers and sector concentration

During an episode of the "Facts Versus Feelings" podcast, Detrick stated he expects a "strong fourth quarter" and maintains an overweight position in technology stocks. He noted that technology comprises 39% of the S&P 500, while communication services accounts for another 11%.

Sonu Varghese, Chief Macro Strategist at Carson Group, stated on the same podcast that technology sector revenues are expected to grow 40% in the third quarter. Detrick added that market history over the last century demonstrates that technology tends to lead bull markets.

Recent market performance

As of the latest close, the S&P 500 index has advanced 13.12% year to date. The Nasdaq Composite index was up 16.46%, and the Dow Jones Industrial Average gained 7.83% YTD.

On Friday, major exchange-traded funds tracking these indices closed higher:

• SPDR S&P 500 ETF Trust (NYSE: SPY) rose 0.54% to $771.35.
• Invesco QQQ Trust ETF (NASDAQ: QQQ) gained 0.46% to $744.50.
• State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA) ended 0.94% higher at $517.49.

What the numbers show

A divergence exists between the long-term historical average and the recent short-term trend. While the average Q4 return since 1950 is 4.2%, the average over the last 13 years is slightly higher at 5.4%, with a median of 6.5%. This suggests that the recent era has been more conducive to Q4 rallies than the broader post-1950 history. However, the single outlier in this recent streak, the 2018 decline of 14.0%, was significantly more severe than the typical annual volatility, highlighting that while the frequency of losses has decreased, the magnitude of potential downside remains substantial in midterm election years.

US stock futures pointed to a positive open on Friday, with Dow Jones, S&P 500, and Nasdaq 100 futures all rising after Iran's Foreign Minister Abbas Araghchi offered to reopen the Strait of Hormuz within seven days.

Araghchi made the offer on the sidelines of the UN General Assembly, conditional on President Donald Trump accepting terms outlined in the Islamabad MOU. "If certain conditions are met, the Strait of Hormuz will be open at the end of seven days, and talks will be restarted. The conditions we have asked the U.S. to meet are nothing new, nothing more than what was already in the Islamabad MOU, which was signed by the U.S. President," Araghchi told reporters, according to Iran International. This follows Thursday's session, where sources had reported that US and Iranian negotiators were already discussing a phased deal, which helped the S&P 500 erase most of its morning decline at midday.

Friday premarket and Thursday close

The SPDR S&P 500 ETF Trust (NYSE: SPY) rose 0.32% to $769.70 in premarket trade, while the Invesco QQQ Trust ETF (NASDAQ: QQQ) gained 0.58% to $745.39. Thursday's closing figures and Friday's premarket futures performance are shown below.

Most S&P 500 sectors ended Thursday's session lower, led by declines in materials, utilities, and consumer staples. Communication services and health care were the exceptions, finishing in positive territory.

Yields and Fed rate expectations

Treasury yields remained elevated heading into Friday. The 10-year bond yielded 5.177%, the 30-year bond stood at 5.47%, and the 2-year yield was at 4.897%. The CME Group's FedWatch tool showed markets pricing a 68.6% likelihood of the Federal Reserve hiking interest rates at its October meeting.

Analysts at Schwab Center for Financial Research noted in a Friday note that Treasury yields edged lower across the curve in the prior session, with longer-dated yields coming under greater pressure following the rate hike. The 10-year Treasury yield slipped to 4.93%, retreating from 19-year highs above 5% earlier in the week. The analysts highlighted that the pullback may indicate the bond market welcomed the Fed's firm stance on inflation, which has remained above the central bank's 2% target. The firm noted it was the first rate increase since 2023, signaling that Fed Chair Kevin Warsh is willing to back his hawkish rhetoric with action. Still, the analysts cautioned that a 25-basis-point hike is unlikely to have a significant impact on energy-driven inflation, which pushed US diesel prices above $6 a gallon, raising the risk of either higher prices for consumers or tighter profit margins for companies.

Stocks in focus

Several individual names are drawing attention ahead of Friday's open.

• Akamai Technologies Inc. (NASDAQ: AKAM): Shares rose 23.38% in premarket after the company announced an $11.6 billion seven-year deal with Anthropic for CPU infrastructure.
• Costco Wholesale Corp. (NASDAQ: COST): Reported better-than-expected fourth-quarter results, with earnings per share of $6.75 and revenue of $95.72 billion. Shares were down 0.17% in premarket.
• Scholastic Corp. (NASDAQ: SCHL): First-quarter results missed Wall Street expectations. Shares fell 10.22% in premarket.
• Tamboran Resources Corp. (NYSE: TBN): Shares rose 4.86% in premarket ahead of fourth-quarter results due before the opening bell.
• People Inc. (NASDAQ: PPLI): Shares were up 10.92% in premarket after The Wall Street Journal reported that MGM Resorts International (NYSE: MGM) is discussing a takeover of People.

Commodities and global markets

Crude Oil WTI futures were trading lower by 1.9% at $92.81 per barrel in the early New York session, pulling back from Thursday's elevated levels when West Texas Intermediate had rebounded to $93.62 and Brent crude had risen to $104.58. Gold Spot rose 0.82% to $4,308.84 per ounce. The US Dollar Index spot was 0.25% lower at 101.03. Bitcoin was trading 1.2% higher at $84,544.06 per coin over the last 24 hours.

Asian markets closed mixed on Friday, with Japan's Nikkei 225 rising while China's Shanghai Composite and Hong Kong's Hang Seng declined. India's Nifty 50 rose, while Australia's ASX 200 closed in the red. European markets rose in early trade.

Upcoming economic data

Investors will be watching two data releases on Friday:

• August's durable goods orders data, due at 8:30 a.m. ET.
• University of Michigan's final consumer sentiment survey, due at 10 a.m. ET.