Tahoe Truckee Market Beat: A look at seasonal stock market cycles
Special to the Sun
Over long periods of time, the stock market has exhibited some seasonal tendencies. The best season on average has been November through April, and the May through October period has been worse.
Some of the biggest stock market crashes we’ve seen have been in the month of October, including the crashes of 1929 and 1987.
There’s an old stock market saying, “Sell in May and go away” — that saying goes back literally hundreds of years to old England.
The original saying was, “Sell in May and go away, do not return until St. Leger’s day.” In those days, virtually all of the stockbrokers took the summer off, and there wasn’t much action in the market until they returned.
Summer season ended on St. Leger’s day, with the final horse race of the summer season in early September and the stockbrokers went back to work.
Even though some of the worst market declines have occurred in October, it’s not the worst month of the year for stocks.
In October 1929, the market declined about 25 percent in two days, the 28th and the 29th, and that two-day drop is still the worst in history.
On October 19, 1987, the Dow dropped 22.6 percent in one day. However, going back to 1950, the worst month of the year has been September, with an average return for the S&P 500 of -0.65 percent.
October has had an average return of +0.68 percent. Over the same time frame, the best month has been December with a return of +1.57 percent.
The period May through November has had an average negative return over those 64 years.
Recently, there’s been an academic study of seasonal performance of the various sectors of the stock market and the results are interesting.
A study that was done by Ben Jacobsen and Nuttawat Visaltanachoti over the 15-year period from 1990-2005 found that there are some sectors that perform just as well in the summer as the winter.
Their research indicates that consumer staples, leisure products, multimedia, retailing and utilities have all had positive returns over the summer season.
The seasonality of the market is worthwhile to observe, but if you do decide to make investment decisions based on seasonality, don’t forget to consider potential tax consequences. Long-term investors should always be prepared for some volatility in the markets.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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