What is Stock Market Seasonality?

Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. This material is for general information only and is not intended to provide specific advice or recommendations for any individual.

Before leaving this example, notice that Intel was up 58% of the time in June, but the average gain was actually a loss. Even though Intel moved higher more often than it moved lower, the losses during the declines outpaced the gains during the advances. The Weekend Effect was originally documented in 1973 by Frank Cross in his essay, where he demonstrated that average returns on Fridays were higher than Mondays.

It’s perhaps no coincidence that October is that last month in the “sell in May and go away” seasonal cycle, as it’s also known as the month in which the most severe stock market crashes occur. The old and simple investment strategy “Sell in May and Go Away” (also referred to as the “Halloween effect”) enjoys an unbroken popularity. Recent studies suggest that the Halloween effect even strengthened rather than weakened since its first publication by Bouman and Jacobsen . We implement regression models as well as Hansen’s “Superior Predictive Ability” test to analyze whether stock markets are really so inefficient. In line with the predictions of market efficiency, our results reject the hypothesis that a trading strategy based on the Halloween effect significantly outperforms. In this paper, we test whether the turn-of-the-month affects firm returns and firm return volatility differently depending on their sector and size.

Weak Months for Seasonal Stocks

It shows historical tendencies, not what will happen this year. Over a 10-year period, not much changes except that the market is pretty much strong from February through to the end of August. September is a little weaker, and then the end of the year tends to be strong. March, April, May, July, August, November, and December are stronger months. The Investco QQQ Trust was used to generate the seasonality figures.

Clicking this link takes you outside the TD Ameritrade website to a web site controlled by third-party, a separate but affiliated company. TD Ameritrade is not responsible for the content or services this website. For a different look, and to see how some actual years have played out, here are the yearly charts of the S&P 500 from 2012 to 2021.

seasonality of stock market

He has written for the New York Institute of Finance and Chron.com. He has an extensive background in financial investing and has taught computer programming courses for two New York companies. He has a Bachelor of Arts in film production from Indiana University.

Digging in deeper, what parts of the market might we see some relief in the coming weeks? Once again, seasonal trends can help us find some winning pockets. There’s a great resource from Equity Clock that I like to reference regarding seasonality. Consumer Staples stocks and the Healthcare sector are usually favored.

Data available for this analysis starts from 2012 so we have 16 years of history to study. We are going to calculate monthly return of each year and plot with box plot. There are also intraday repeating patterns that play out, which are useful for short-term traders and day traders. According to Quantified Strategies, buying on the third Friday of December and selling on the close of the third trading day of January bumped the average return up to 1.79% per trade. But it’s quite clear that seasonality does exist in the stock market, it’s just harder to find and even harder to explain.

The first line, shown in red , indicates the performance of the displayed security over the selected time span indicated at the top of the chart, which is 10 years in this case. From this line, you can see month-to-month how it performed on average via a percentage basis. Before you look at the Seasonality chart for insight, consider making two settings adjustments to it. One, switching the chart’s time frame to 10 years may be beneficial as it can help smooth out the impact of any stock’s one-year price movement. Two, changing the chart to a percentage chart may help you interpret what it’s showing more clearly.

Seasonal Stock Market Trends

As the designated nine years appear in the final study, a fully invested position was assumed for the entire year in the DJIA as was done exclusively for the FPS strategy. Table 3 below provides us with the results of the 4-YCS and the Melded Strategy . The asterisks that appear in Table 3 indicate the fully invested years used in the 4-YCS.

seasonality of stock market

Financial media has lots of sayings to describe the stock market seasonality, but one that seems to come true is, “As January goes, so goes the rest of the year”. In my teachings and webinars, I address issues like this frequently in order to help you refine your trading techniques. While adapting to seasonal trends won’t make you zillions of dollars right away, it’s one of those things that can help improve your chances of success over time. As an investor, you could potentially look at these seasonal trends and stand to gain from taking advantage of the resulting rise and fall of a stock.

The anomalous stock market behavior of small firms in January: Empirical tests for tax-loss selling effects

According to Fidelity, going back to 1945, the S&P 500 has gained about 2% on average from May through October. But from November through April over that same time period, the S&P 500 gained about 6% annually. This outperformance extends to small-cap stocks and global stocks as well. Warm weather sports manufacturers will likely sell more during the summer months. Many retailers do particularly well during the holiday shopping season. However, just because a company sells more during a particular time of the year does not mean it will necessarily translate to a strong stock performance during that time of the year.

  • Today we’ll consider the question with the help of some longer-term moves and comparisons involving the Nasdaq-100.
  • Learn the seasonal patterns of the stock market, including which months perform best and worst.
  • Seasonalities are regular and predictable patterns that recur every calendar year.
  • But even that is not working every year despite a sound reason behind it.
  • But you can definitely be underprepared, which is why many traders lose money.
  • Seasonality tells us what has happened in the past, which is the historical tendency.

At the end of each quarter, or sometimes at the end of the calendar year, a fund manager may sell all the stocks that performed poorly in that quarter. Seasonality is one of those tools that have so many ways of distorting data beaxy exchange review or presenting results in a bad way. It starts with how many years of history you are looking at, e.g. are you considering the last 15 years in US stocks as being the new „normal“ or are you choosing a longer timeframe?

Seasonality is a phenomenon where price undergoes similar and predictable changes around the same period within every calendar year. These changes can happen in a specific meteorological season, growing season, quarter, month, holiday period or off-peak period. For example, there is a seasonal trend in the demand for profitable moving average forex strategies heating oil, pushing prices higher when demand increases and lower when demand decreases. There is a seasonal trend in the supply of soybeans , influencing price and producing patterns along the way. The study investigated both the January effect and the “sell-in-May-and-go-away” anomaly in government bond returns.

Most traders know big technology stocks have struggled over the past year. Today we’ll consider the question with the help of some longer-term moves and comparisons involving the Nasdaq-100. First, the tech-heavy index’s low this month was 38 percent below its all-time high.

Since this study is concerned with risk reduction, the DJIA was selected over other available market indexes. The “Presidential Cycle” might seem to have nothing to do with the stock market, but indirectly the two do show a correlation. Typically, stock market gains in the first two years of a presidential administration are not as high as in the second two years. Historically, the third year of a presidential administration posts the best gains, according to the Stock Trader’s Almanac. To some degree, the “October effect” is psychological, as past crashes such as Black Friday in 1929 and Black Monday in 1987 occurred in October and are always in the back of investors’ minds. However, October is also the last month in the statistically weaker May-October period for the market, and it follows the worst-performing month of the year on average, September.

Journal of Business

There are real socioeconomic factors that affect people’s buying and selling of stocks which occur at regular and predictable intervals which we’ll get into in this article. Notice the predictable spikes in retail sales during the holiday season every year from 2015 to 2019. This seasonal fortfs review trend occurs in recessions and healthy economies. The above graph is an average demand/price for gasoline in the US on a monthly basis over 20 years of data. As you can see, there’s a predictable rise in the summer over the 20 year period, which repeats itself almost every year.

This amount is less than half the value of the consistent no-loss strategy. Losses can damage one’s portfolio more dramatically than is commonly understood. For example, assume that a hypothetical portfolio begins with a $10,000 investment and that it has the good fortune to consistently earn 17 percent over a ten-year period. (While taxes and inflation constitute a part of real life, they will not be considered here.) At the end of the tenth year, the value of the portfolio would be $48,070.

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