The S&P 500, the Nasdaq and the Dow Jones — all hit all-time highs this year, having gained about 12.5%, 16.1% and 8.4%, respectively, so far this year (as of Sept. 25, 2025). But the fourth quarter may see even higher gains as it includes the all-important holiday season.

The fourth quarter of the year has actually been the best for the stock market. Over the past three decades, dated back to 1989, the Dow Jones (4.3%), the S&P (3.6%) and the Nasdaq (4.7%) posted gains in the fourth quarter, according to Kensho, and traded positively 75-80% of the time, per a CNBC article issued in 2019.

Let’s find out what factors can hold up well for the stock market this fourth quarter.

Upbeat U.S. GDP Growth

Thanks to stronger consumer spending, the U.S. economy grew at an unexpectedly robust 3.8% pace in Q2 of 2025, marking an upward revision of second-quarter growth released by the government.

The Commerce Department said Thursday that gross domestic product (GDP) bounced back in the spring after a 0.6% decline in the first quarter, which had been hit hard by trade tensions. The new estimate is higher than the previously reported 3.3% growth (per AP news, as quoted on Yahoo Finance).

All-Important Holiday Season

The fourth quarter embraces an all-important holiday season, and consumers tend to make solid discretionary purchases this time of the year. Note that consumer spending rose at a 2.5% clip in Q2, up from 0.6% in the first quarter and way higher than the 1.6% that the government had previously estimated.

This shows that the consumer spending pattern remains decently strong, which calls for a strong holiday season this year. This is especially true given that the Fed has started cutting interest rates from September 2025 to boost a weakening labor market. Market experts are anticipating further cuts this year, which should boost consumer spending even further.

Host of AI Deals Announced in September

While some market experts are concerned about the payoffs of huge investments being made in artificial intelligence (AI), the pace of AI investments is showing no sign of abating. NVIDIA has announced investment plans in OpenAI (worth up to $100 billion). Meanwhile, NVIDIA announced a $5 billion investment in Intel. There has been a deal announced between Alibaba and NVIDIA (per RTT news).

CoreWeave announced an agreement with OpenAI to power the training of its most advanced next-generation models. Intel has reportedly approached Apple for an investment to fund its rebound, as quoted on Bloomberg. In short, the month has seen mega-deals in the AI space, which ensures that the AI boom is in fine fettle and should be able to drive Wall Street in the coming months.

Also, there have been deals in quantum computing. Among the notable ones, IonQ announced its intent to acquire Vector Atomic. Rigetti announced a three-year contract with the Air Force Research Laboratory (AFRL). Meanwhile, Trump and Britain joined forces on advancing AI, quantum computing and nuclear technologies (read: Here's Why Semiconductor ETFs Are Hitting 52-Week Highs).

Earnings Strength

As we have consistently highlighted in recent weeks, the overall revisions trend of the S&P 500 earnings estimates remains positive, with estimates for the back half of the year steadily going up. For 2025 Q3, total S&P 500 index earnings are expected to be up 5.2% from the same period last year on 6.0% higher revenues, per the Earnings Trends. However, barring the Tech sector contribution, Q3 earnings for the rest of the S&P 500 index would be up only 2.2% (vs. 5.2% otherwise).

ETF Picks

Against this backdrop, below we highlight a few ETFs that could be great picks for Q4. 

iShares Russell 2000 ETF (IWM Quick QuoteIWM - Free Report)  – Zacks Rank #2 (Buy)

Small caps have gained momentum lately on Fed rate cut hopes and the upbeat GDP outlook provided by the Fed. As small-cap stocks are closely tied to the domestic economy, such developments go well with the segment. These pint-sized stocks often depend on borrowed money and perform well in a lower rate environment.

Financials – Financial Select Sector SPDR ETF (XLF Quick QuoteXLF - Free Report) – Zacks Rank #1 (Strong Buy)

Long-term yields may jump in the fourth quarter due to the holiday shopping season and the broad-based risk-on trade sentiments. If long-term bond yields jump along with Fed rate cuts, yield curve may steepen. This is a plus for the space. The sector is also seeing a favorable earnings revisions trend for Q3.

Consumer Discretionary – Consumer Discretionary Select Sector SPDR ETF (XLY Quick QuoteXLY - Free Report) – Zacks Rank #3 (Hold)

The late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quarter, the sector generally sees a sales boost. Holiday retail sales are likely to increase between 2.9% and 3.4% in 2025, according to Deloitte’s annual holiday retail forecast, as quoted on CPA Practice Advisor. As a result, the consumer discretionary sector has every chance of grabbing attention in Q4. 

Energy – Energy Select Sector SPDR ETF (XLE Quick QuoteXLE - Free Report)  – Zacks Rank 2

This is another sector that is enjoying a favorable earnings estimate revisions trend. The AI boom is driving the sector at present as immense energy is needed to feed the power-hungry data centers. Moreover, Trump has always been in favor of fossil fuels. The sector has underperformed the S&P 500 so far this year. But XLE ETF has gained momentum over the past month and beat the S&P 500. Moreover, the winter months should see higher heating demand and boost energy stocks.