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U.S. Stocks 2012: Can Bulls Keep the Charge Into Q4?

Historically, September hasn't been kind to stocks.

But a noticeable trend is emerging.

In the past seven Septembers, the Dow Jones Industrial Average has risen five times. And while the last trading day of September 2012 ended down, it was an up month for the Dow.

In fact, the Dow has now risen in 11 of the past 12 months (May saw a 6% decline). The last time markets enjoyed that kind of stellar streak was in 1959.

For the third quarter, the Dow tacked on 4.3%, the Standard & Poor's 500 Index rose 5.8% and the Nasdaq climbed 6.2%

Year-to-date, all three major indexes have enjoyed robust gains. They headed into the fourth quarter up 10%, 14.6% and 19.6% year-to-date, respectively.

Commodities also ran higher in the third quarter. Gold glowed, gaining 8%, oil gushed higher by 8%, and the Dow Jones-UBS Commodity Index surged 15%. Gold, up 11% in 2012, and silver, up a sterling 24% so far this year, are both expected to benefit further as the Fed's free monetary stance weighs on the value of the dollar and inflation worries are amplified.

Most of September's gains came during the first two weeks as markets anticipated a third round of quantitative easing. The Fed delivered at the Sept. 13 Federal Open Market Committee (FOMC) meeting, and stocks muddled through the rest of the month suffering from a case of buy on the rumor and sell on the news.

"The third quarter story was really simple. The performance was propelled by the generosity of global central bankers," Rex Macey, chief investment officer at Wilmington Trust told USA Today.

Now let's take a look at if this momentum will surge into the fourth quarter.

The Market Factors Fueling a Strong Q4

According to Bespoke Investment Group, the fourth quarter has been the best-performing quarter for the Dow in the past 20, 50 and 100 years.

And while the fourth quarter of 2012 is saddled with uncertainty, volatility and unease, the forecast is for the last three months of 2012 to close on the plus side.

"The fourth quarter has been a good time to be in the markets," Paul Hickey, managing partner at Bespoke Investments told USA Today.

Despite growing concerns of a recession in 2013 thanks to the fiscal cliff, this year's last quarter looks to keep on with the trend.

"You don't want to bet against the trend," Hickey added.

Market participants may be getting defensive, but by swapping in and out of equities they are keeping volume strong. And while gravitating toward safe haven and inflationary hedges gold and silver, they are stoking precious metal markets.

Plus, hedge funds and investors who missed out on vigorous third quarter gains are determined not to sit out any end of the year rally.

Global investors are also helping U.S. stocks. Foreign assets are flooding into U.S. stock markets which are viewed by overseas investors as a safer alternative to their native exchanges.

In addition, U.S. corporations are fueling market gains. Companies in the S&P 500 are set to close 2012 with buybacks of their own shares totaling $429 billion, J.P Morgan data shows.

Plus, the Fed has vowed to maintain its liberal program of loose and liquid money and near zero interest rates until a sustainable and sustainable fiscal recovery is attained.

All factors can keep this rally going into Q4.

Despite who wins Election 2012, simply having that unknown resolved will be a positive for markets.

But if President Obama wins a second term, investors may benefit a bit more-at least temporarily.

Further evidence a fourth quarter rally is imminent is the fact that stocks have advanced in every fourth quarter since World War II (with the exception of 1948) when an incumbent present wins the election.

Stocks enjoyed a strong rally the first day of the fourth quarter, with the Dow gaining nearly 78 points to close at 13,515.04.

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  1. ed Carroll | October 7, 2012

    Just a thought about inflation here – If a rising tide leits all boats doesn't it also flood all nearby villages? I've lived in Africa half my life so, Africans being perhaps more practical than we are, ask the practicl question – who needs boats any more if the floods kill all the riders?

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