Reviewing the 3rd Quarter While Looking Ahead to Year-End

The third quarter of 2023 is now history.  The September effect overwhelmed mildly positive returns in July and August to submerge all six benchmark indexes we monitor quarterly into the red.  Although the order of best to worst varies among the six indexes, one commonality is having September as the worst historical month, both in terms of magnitude and frequency.

All 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated.
Two-week free trial:

This table, courtesy of Zacks Investment Research, reflects the three most relevant statistics of the monthly returns of the S&P 500 Index between 1964 and 2022 year-end.  Veterans among us who remember 1987, 1997 and 1999 will not be surprised that October is the month with the highest standard deviation as it most frequently ends positively but also has experienced more than its fair share of market crashes and corrections over time.

Month Mean Return % Positive Months Standard Deviation
January 1.1% 59% 4.9
February 0.0% 55% 3.9
March 0.9% 64% 3.9
April 1.8% 74% 3.9
May 0.2% 59% 3.6
June 0.2% 59% 3.3
July 0.7% 52% 4.0
August 0.1% 57% 4.8
September -0.5% 47% 4.3
October 1.0% 60% 6.0
November 1.4% 67% 4.4
December 1.3% 72% 3.4

Obviously, seasonal trends do not apply to every year’s monthly returns.  Furthermore, these historical frequencies will change dynamically over time.  Most notably, January has been the most positive month for the market and especially for the small-cap Russell 2000 going into the 21st Century. But that has changed dramatically since 2001.  In fact, between 2002 and 2022, January has been tied with September as the worst month both in terms of magnitude and frequency.

Beyond the September effect, index returns are driven by a multitude of factors.  The ETF reports on ValuEngine for ETFs that follow market benchmarks provide a side benefit in writing market analyses.  They are a window to implicit forecasts for 3-, 6- and 12-month forecasts VE models make for each benchmark’s ETF portfolio.  This is because the ratings and projections combine bottom-up constituent analysis with analyses of the historical price movements of the ETF in different market environments.   This empowers us to provide both looks back and share our model’s views on that which lies ahead.

The benchmark indexes and ETFs analyzed here are:

  1. The S&P 500 Index representing US Large Cap, the ETF is iShares’ IVV;
  2. The S&P 400 MidCap Index representing US MidCap; the ETF is SPDR’s MDY;
  3. The Russell 2000 Index representing US Small Cap; the ETF is iShares’ IWM
  4. The Russell 1000 Large Cap Growth Index; the ETF is iShares’ IWF;
  5. The Russell 1000 Large Cap Value Index; the ETF is iShares’ IWD;
  6. The Nasdaq-100, constructed as an index using the top 100 non-financial stocks with primary listing on the Nasdaq, but now regarded as the premier US Big Tech Index; the ETF is Invesco QQQ.
Current ValuEngine reports on these stocks or ETFS can be viewed HERE

All historical data are as of 09/29/2023

Market Index Being Tracked Russell Large Cap Value Russell Large Cap Growth Russell 2000 Small Cap S&P Midcap Nasdaq 100 iShares S&P 500
VE Rating 2 4 4 3 4 3
Forecast 3-mo. Price 1.14% 2.82% 0.75% 1.01% 2.97% 2.06%
Forecast 6-Mo. Price 3.92% 6.61% 2.51% 3.34% 7.23% 5.42%
Forecast 1-yr. Price -2.94% -0.01% -1.00% -2.00% 0.07% -1.38%
Historic 1 mo. Perf -4.62% -4.92% -6.10% -5.34% -4.40% -4.89%
Historic 3 mo. Perf -3.00% 1.94% -5.17% -3.99% -1.52% -2.47%
Historic 6 mo. Perf 4.61% 11.43% 0.75% 1.68% 14.57% 6.52%
YTD (9-Month) Perf 0.70% 24.85% 2.50% 4.08% 35.13% 13.02%
Historic 1-Year Perf 8.64% 23.32% 6.39% 12.90% 31.78% 17.68%
Historic 3-Yr Ann. Perf 9.87% 9.59% 2.69 9.90% 9.63% 10.18%
Historic 5-Yr Ann. Perf 4.48% 11.90% 1.73% 5.22% 14.11% 8.74%
Volatility 19.7% 21.1% 24.8% 23.3% 22.4% 19.0%
Sharpe Ratio 0.23 0.56 0.07 0.22 0.63 0.46
Beta 0.98 1.07 1.18 1.15 1.10 1.01
# of Stocks 846 447 1948 400 100 500
Undervalued by VE % 42% 31% 64% 38% 27% 32%
P/B Ratio 2.4 12.3 2.0 2.4 7.3 4.3
P/E Ratio 14.9 26.1 11.0 13.5 22.7 17.9
Div. Yield 2.1% 0.8% 1.6% 1.3% 0.8% 1.6%
Expense Ratio 0.18% 0.18% 0.19% 0.22% 0.20% 0.03%
Largest Holding Pct. Exxon Mobil Corp (XOM)



Apple (AAPL) 12.14% VE3 Super Micro Com




Hubbell Inc. (HUBB),

0.75% VE4

Apple (AAPL)

10.80% VE3

Apple (AAPL)



Index Provider FTSE Russell Indices FTSE Russell Indices FTSE Russell Indices S&P Dow Jones Nasdaq S&P Dow Jones
ETF Sponsor iShares by Blackrock iShares by Blackrock iShares by Blackrock SPDRs by SSgA Invesco SPDRs by SSgA
Current ValuEngine reports on these stocks or ETFS can be viewed HERE


  1. The dominance of large cap technology stocks continues its influence on overall market returns – even in a down quarter. One main reason is the fascination with the fight for the lead in artificial intelligence among tech and communications companies.
  2. The ValuEngine model predicted this reversal in the leadership, having rated the growth ETFs, QQQ and IWF with ratings of 4 (Buy) at the end of 2022. In contrast, in the same January blog, IWD and MDY had been rated 2 (Sell).
  3. The model is predicting even more so of the same for the six-to-twelve-month period ahead. QQQ, Invesco Nasdaq-100, and IWF, iShares Russell 1000 Growth, have our highest rating of 5 (strong buy) while IWD and MDY remain rated as 2 (Sell). In street parlance, they are potential “sources of funds” which means that current holdings in either or both could be sold, then re-deployed to IWF and/or QQQ. The last sentence is just an explanation, not a recommendation.
  4. From a valuation perspective, QQQ and IWF are very expensive as compared with S&P 500 ETF, IVV. This is true using all metrics from traditional financial ratios and dividend yields to ValuEngine’s valuation model. This historical over-valuation is a major reason, many market pundits have predicted the onset of a tech bubble and subsequent crash. On a predictive basis, I believe such predictions are premature at best. But anything is possible.
  5. On the other end of the valuation spectrum is IWM, the iShares Russell 2000 Small Cap ETF. Greater than two-thirds of its holdings are undervalued according to our valuation model. Remarkably, given the historical relationships between small cap and large cap stocks, IWM has an identical dividend yield to IVV and a 20% lower price-to-book-value ratio. Historically, the Russell 2000 small cap index has averaged about 33% of the dividend yield of the S&P 500 and about twice as high on the basis of price-to-book ratio. Investors using mean reversion as a factor may anticipate that eventually we will hit a period where small cap significantly outperforms large cap.  Given that IWM currently has a 3 (Hold) rating, such a commitment looks to be premature for now.

The Select Sector SPDRs divide the 500 stocks into the 11 different GICS sector each represents. This chart compares price histories and other key characteristics.

Current ValuEngine reports on these stocks or ETFS can be viewed HERE
Sym Name 1 Mo Retn YTD Change 1 Yr Retn 3 Yr Rtn 5 Yr Retn Div. Yield % P/E
XLK Technology -3.40% 32.60% 36.60% 13.20% 18.10% 1.1% 23.8
XLF Financial -2.50% -1.70% 10.50% 13.50% 6.00% 2.5% 12.5
XLV Health Care -3.30% -4.10% 6.60% 9.10% 8.10% 2.0% 16.7
XLE Energy 3.30% 6.10% 29.20% 49.20% 9.00% 4.2% 8.9
XLY Consm Disc -2.50% 25.50% 11.90% 3.90% 7.60% 1.1% 24.2
XLI Industrial -5.20% 4.50% 22.80% 10.90% 7.20% 2.1% 18.5
XLC Comm Serv -0.70% 37.60% 36.50% 4.30% 6.90% 1.0% 16.0
XLU Utilities -6.60% -14.40% -9.00% 3.10% 5.60% 4.5% 17.9
XLP Consm Staple -4.80% -6.00% 4.00% 5.30% 7.80% 3.4% 19.9
XLB Materials -3.00% 2.60% 17.60% 9.50% 8.50% 2.6% 16.1
Financial Advisory Services based on ValuEngine research available:


  1. Utilities, represented by XLU, is easily the sector most affected deleteriously by the spike in interest rates. Given a choice between all the uncertainty in energy and other economic factors affecting utilities, investors that had previously flocked to this sector for yields have now abandoned it for higher-yielding credit-risk free short-term securities and bank instruments.
  2. Since the inception of the Communications Services sector by GICS in 2021 and the launch of the Select Sector SPDR, XLC, which includes Mega and Google among other major companies previously included in the tech sector, it has performed in line with the tech sector. On a longer term basis, it has performed like telecommunications technology/utility stocks. This is an excellent case on why investors need to do their own research and understand what is being done to definitions rather than to accept labels at face value.
  3. The Health Care Sector, XLV, continues to languish and has had noncompetitive returns relative to other sectors generating impressive earnings streams for nearly five years. Fear of regulation is one reason. Nevertheless, for an industry with competitive earnings growth, its valuations compared to other sectors, particularly consumer staples and industrial, seem quite low right now.  Is it getting poised for a rebound?  Time will tell.

In conclusion, the strength of the market continues to be in technology and related communications companies.  The latest strides made in artificial intelligence and the race for leadership have only made the market more focused on these leadership stocks.  At what point do they become too frothy and see money redeployed to smaller cap and less highly valued stocks?  That is the key question facing investors as we head into the fourth quarter.


By Herbert Blank
Senior Quantitative Analyst, ValuEngine Inc
All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 600 ETFs have been updated on
Financial Advisory Services based on ValuEngine research available through ValuEngine Capital Management, LLC
Free Two Week Trial to all 5,000 plus equities covered by ValuEngine HERE

Subscribers log in HERE