Will the Fourth Quarter Be Good or Bad?

With all the current volatility on the stock market, it’s great to see some stocks actually going up in price.

I recently wrote about China Fire & Security Group, Inc. (NASDAQ/CFSG) as a compelling investment prospect in this market. The stock’s been strong lately. It has appreciated some 30% in the last two weeks.

When a stock is going up while the broader market is going down, this is usually a solid signal that there’s lots up upside ahead. Considering all the stocks out there, it’s quite rare to find a stock in a sustained uptrend when the broader market is falling.

We’re now in the last month of the third quarter and, typically, September is not a good month for stock prices. For some reason, the end of the third quarter and the beginning of the fourth quarter seem to be a time when investor worries coalesce. Anything can happen during this period and history shows that it is often unkind to investors.

Over the very near term, a lot of investors will be sitting on the sidelines waiting to see if the Federal Reserve makes a move on interest rates at its next meeting (Sept. 18). If the central bank cuts interest rates a quarter point, then the fourth quarter is likely to be a good one for stock prices. If, however, the central bank keeps a hold on rates, stock market reaction is likely to be unkind. I don’t like making predictions, but that’s my gut feeling on the situation.

So, I’m left with a feeling that investment risk is still very high and investors need to be very cautious over the near term. I remain, however, extremely excited about many attractive small companies in the marketplace. When investor sentiment improves, a lot of growth stocks I’m following should do very well.