Bulls Can't Go Wrong With This Sector for Q4

Subscribers to Chart of the Week received this commentary on Sunday, Sept. 20

Somehow, we are already more than halfway through September, with just eight trading days left of the third quarter. Currently, the Dow Jones Industrial Average (DJI) and the Russell 2000 Index (RUT) are the only benchmarks pacing for quarterly losses, though the Nasdaq Composite (IXIC) continues to test its quarterly and monthly breakeven marks.

As Wall Street gears up to enter the fourth and final quarter of 2026, many stocks on Wall Street are at a crossroads. Can major indexes finish the year strong, or will September seasonality portend struggles through the end of the year? Quantitative data can help cut through the noise.

Per Schaeffer’s Senior Quantitative Analyst Rocky White, one sector makes its presence known in Q4; banking. A whopping 12 of the 25 (almost 50%!) best S&P 500 stocks that outperformed in the fourth quarter over the past 10 years were financial institutions of some kind. This includes Charles Schwab (SCHW), KeyBanc (KEY), Morgan Stanley (MS), Goldman Sachs (GS), and more.

Looking at win rates across the board, each bank name on the list has finished the fourth quarter higher in nine of the past 10 years. SCHW boasts the most impressive return of the group, averaging a 16.5% gain, the third-best stock to own overall. KEY made its way to next best for the finance sector, averaging a 14.5% quarterly gain.

Exchange traded funds (ETFs) are no exception. In a list of the top 10 ETF outperformers for the fourth quarter over the past 10 decades, three banking-adjacent ETFs made the cut. In fact, the SPDR Bank ETF (KBE) and Financial Select Sector SPDR ETF (XLF) are the top two performers, with 90%-win rates and average returns of 10.4% and 8.6%, respectively. SPDR S&P Regional Banking ETF (KRE) rounds out the top 10 with an 80%-win rate and 10.9% average Q4 gain.

KBE and XLK were the only two ETFs that managed to outperform both the Dow Jones Industrial Average (DJI) and SPX in this time frame. Following a massive recovery period for banks following the Covid-19 era, the equities also garnered impressive returns in 2016 and 2023.

Coming off a historically bearish period for Wall Street, investors could use a win close out this volatile calendar year. With the Fed’s September rate hike decision in the rearview mirror and AI leeriness growing, the banking sector could be a safe space to for the remainder of 2026.