Oct. 10 (Bloomberg) -- If the fourth quarter is here, it must be time for a stock-market rally.

Such thoughts have stirred in my head lately, and maybe in the minds of other investors too. You really can't blame us. In many a recent year, the last three months have been the best three months to own stocks or stock mutual funds.

A check of my Bloomberg shows that the Standard & Poor's 500 Index saved its best showing for the last quarter in six of the last 10 years -- 2003, 2002, 2001, 1999, 1998 and 1996. Over that span it endured only one losing fourth quarter, in 2000, when it fell 8.1 percent.

If we take a simple average of the quarterly percent changes posted by the index from 1996 through 2005, the fourth quarter towers over the other three. By my quick calculation, the fourth quarter averaged a 7.8 percent gain, compared with a 3.7 percent advance in the second quarter, a 1 percent rise in the first quarter, and a 3.9 percent loss in the third quarter.

Attention-grabbing numbers, those. As long as you stayed in the market, and didn't jump in and out at just the wrong times, the fourth quarter alone was often enough to make your year. With compounding, the S&P 500 climbed through those October-December periods at an average annual rate of 35 percent.

Why this skewed pattern? All sorts of elaborate explanations offer themselves.

Fund Finagling

Maybe it results from mutual funds reinvesting money raised by weeding out their losers as they prepare their portfolios for yearend. Maybe it's the handiwork of calendar-conscious traders trying to stay ahead of the famous January effect, a long-studied tendency for stocks to rise at the start of a new year.

Or maybe it has something to do with the holding of U.S. elections in early November. In some recent presidential and congressional election years, great angst has surrounded the counting of the ballots. Once the outcome is known and it becomes clear that the republic is still functioning, relief rallies often occur.

As it happens, there is an election coming again this year. It's a midterm election, with no presidential race -- but nevertheless a source of much uncertainty over whether the Republicans will keep their majority in Congress, or whether the Democrats might gain control of the Senate, the House or both.

Should power wind up divided, expect to hear echoes of that popular 1990s watchword on Wall Street, ``Gridlock is good!'' This maxim holds that a standoff in Washington helps minimize the chances of any troublesome legislative surprises. So the timing is ripe for a new study that challenges the validity of this theory.

Not So

Where stocks are concerned, it's ``a myth,'' say researchers Robert Johnson, Scott Beyer and Gerald Jensen, writing in the Financial Analysts Journal. ``Political harmony, when the same party controls Congress and the White House, is more favorable to equities as returns are both higher and less volatile during these periods.''

Gridlock does appear to help bond returns, they acknowledge: ``This finding supports the view that gridlock leads to a slowdown in legislative action, which in turn dampens government spending, inflation and deficits.''

For any would-be rider on stocks' fourth quarter gravy train, another question must be addressed. Just as the January effect has shown signs of shifting to December or even November, is it possible the fourth quarter rally is migrating back to the third?

In 2005, the S&P 500 posted a better gain in the third quarter, 3.1 percent, than its fourth-quarter advance of 1.6 percent. This year, the index rose 5.2 percent in the third quarter, not including dividends, for its best July-September showing since 1997.

Dying of Exposure

As soon as any pattern like the Fourth Quarter Cornucopia comes to be recognized in the markets, investors start negating it by acting on it ahead of time. It really doesn't matter whether the perceived repetition results from real calendar forces, or mere random accident.

Patient, long-term investors have the luxury of viewing all this with a certain bemused detachment. The buy-and-holder doesn't care so much when the stock market rises, as long as it finds a way to keep doing that at one time or another.

So if the fourth-quarter bonanza is fading, well then, long live the third-quarter effect.

(Chet Currier is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Chet Currier in Los Angeles at ccurrier@bloomberg.net

Last Updated: October 10, 2006 00:01 EDT