Not so long ago, we examined the phenomenon of stocks failing to generate noticeable gains during the summer months. We noted that the old adage “Sell in May and go away” was actually a bit off in its timing as recent market doldrums have begun mid-July, and even then we observed that any single year could violate the rule, e.g. the bull market run in the summer of 2020. This year, on July 12, 2021 the S&P 500 stood at 4384.62; on October 12, nearly 3 months later, the S&P 500 was valued at 4363.55 – a drop of just less than -0.5%.
Now that summer is over, fall has begun, and over the past few weeks stocks have started to struggle. Tax law changes are in the works, debt ceiling issues have surfaced, and the lingering effects of Covid-19 have resulted in a range of unusual events, like the lines of cargo ships in harbors around the US, some waiting days or even weeks to unload. Considering these recent events, we thought it would be a good time to revisit the seasonality charts and see what (if anything) they tell us about the coming months from a historical perspective.
We’ve noted the date of the first letter on an updated seasonality chart and shifted the green box to highlight another seasonal effect – and that’s the tendency of the market to rally through the end of the year.
For the longer time periods, as highlighted in the green box, market upswings tend to begin right around now, early October, and have posted average gains of roughly 5%. More recently, 2016 to present, the year-end rallies look to begin a few weeks later, closer to the end of the month, but the gains have been equally strong.
Either way there is a strong tendency for equities to post gains through the end of the year. So, if the recent volatility in stocks has you a bit unnerved, you might take some comfort in the observation that that the seasonal trend is very much in your favor. Of course, as with the summer months, there are always exceptional years too. Excepting the market collapse associated with the outbreak of Covid-19 in March of last year, eight of the ten worst days in S&P 500 history occurred between September and the end of the year.
As always, these analyses of trends and conventional wisdom serve to fact check the knowledge that circulates as truth in so many financial circles. While there is indeed a positive seasonal trend in the fourth quarter, Q4 also houses many of the worst market disasters in history. So where to go from here? The real question to ask is how is your portfolio positioned should either of these events come to pass? If you are ready for whichever it is, then you are in good shape. If you are planning on just crossing your fingers and hoping for one or the other, then maybe it is time to consider talking to a professional and getting your investments, and perhaps the rest of your financial life, prepared for a broader range of possibilities.
Jim, Mark, and Dave
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