Midterm Year Q4 Averages 5.5% Gains: Stovall Explains Where the Gains Usually Come From

Sam Stovall, chief investment strategist at research firm CFRA, says midterm year fourth quarter (Q4) gains average about 5.5%. He advises investors to keep holding the third quarter’s winners.

He spoke on CNBC’s “The Exchange” on Monday, at a time where stocks are feeling the pressure. The S&P 500 closed that session down 0.77% at 7,683.69 as Treasury yields climbed.

Stovall Says Midterm Year Q4 Favors Q3’s Winners

Historically, the S&P 500 gains about 5.5% in the fourth quarter of a midterm election year, Stovall said. Those quarters rose 75% of the time after a positive third quarter (Q3).

This year is on track to qualify. The index is up more than 2% for the quarter and more than 12% in 2026, CNBC data shows.

Second and third quarters in midterm years typically post dismal results. Investors have wondered whether this rally borrowed from Q4, Stovall said. He answered no.

Instead, he advised staying with the quarter’s leaders.

“following a strong Q3, you want to let your winners ride.”

Sam Stovall, chief investment strategist at CFRA, told CNBC.

In contrast, a weak Q3 flips the approach. Stovall said investors would then buy the three worst-performing sectors.

Low-Debt Sectors Drove the Third Quarter

Stovall tied that leadership to balance sheets. Sectors with the lowest ratios of net debt to EBITDA (earnings before interest, taxes, depreciation and amortization) held up best. Therefore, investors rotated into them because of worries about rising rates.

Energy, healthcare, technology, and communication services led the group. By comparison, industrials, real estate, and utilities ranked worst.

Technology alone makes up almost 40% of the S&P 500’s market value, Stovall said. Adding communication services brings the total to about half.

Meanwhile, higher oil prices lift the value of proven reserves at Exxon and Chevron, he added.

Rising rates and oil have pressured stocks. The 10-year Treasury yield briefly reached 5.23% on Friday, its highest since June 2007, Zacks reported.

Stovall said first-quarter returns had already flagged inflation, rates, and oil as concerns for 2026. However, he said the low-debt leadership may extend into Q4 unless near-term relief arrives.