As many professional investors know, the fourth quarter is typically a good period of the year for equity investors. The jury seems to be split on the potential outcomes for this year’s last three months, however. Some investors, focusing on inflation and energy prices, seem to think that equities don’t have any farther to run. Those who focus on the quality of earnings and the resiliency of the economy are a bit more bullish.
I’m in the latter camp. As stocks have continued climbing a wall of worry, an increasing number of money managers will be forced to buy into the current rally. After all is said and done, I suspect that most market indexes will be higher on the last day of the year than they are today.
The question then becomes how to play a potential rally. The third quarter was dominated by small-cap growth stocks, which gained about 6.3%. The Nasdaq was another big winner, up 4.6%. I think a less risky way to gain exposure to equities is with large-cap stocks.