The Strongest Seasonal Stock Market Trend Readers may already have guessed: when the vibrant colors of the autumn leaves are revealed in all their splendor, the strongest seasonal period of the year begins in the stock market – namely the year-end rally. Will Santa wake up this year? Last year he was clearly missing in action – but that is actually the exception, not the rule [PT] Stocks typically rise in this time period. However, there are questions, such as: how often does a rally take place, how strong is it, and when is the best time for investors to enter the market? I will answer these questions for you below. The “Golden Season” in the S&P 500 Index Begins Now! The first illustration below represents a seasonal chart of the
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The Strongest Seasonal Stock Market Trend
Readers may already have guessed: when the vibrant colors of the autumn leaves are revealed in all their splendor, the strongest seasonal period of the year begins in the stock market – namely the year-end rally.
Will Santa wake up this year? Last year he was clearly missing in action – but that is actually the exception, not the rule [PT]
Stocks typically rise in this time period. However, there are questions, such as: how often does a rally take place, how strong is it, and when is the best time for investors to enter the market?
I will answer these questions for you below.
The “Golden Season” in the S&P 500 Index Begins Now!
The first illustration below represents a seasonal chart of the S&P 500 Index. The chart was created by calculating the average returns of all years since 1950 and thus shows the typical seasonal pattern of the S&P 500 Index in the course of a calendar year. The horizontal axis denotes the time of the year, the vertical axis the level of the seasonal index.
S&P 500 Index, seasonal pattern since 1950. The S&P 500 has typically rallied from 26 October onward
The arrows mark the year-end rally between 26 October and 03 January of the next year. In this time span of just over two months, the S&P 500 Index rose on average by 4.27 percent. On an annualized basis this is equivalent to quite a large gain of 24.79 percent.
By way of comparison: in the remainder of the year the S&P 500 Index generated an average annualized gain of just 3.58 percent.
Evidently, the return generated by the year-end rally is far superior.
A Very High Win Rate of 82.61 Percent!
The seasonally favorable time period between 26 October and 03 January delivered positive returns in 57 out of 69 cases, or in 82.61 percent of the years under review. This is quite a large and statistically significant percentage.
Thus, in addition to the well above average gain generated by the year-end rally, the pattern also exhibits a very high win rate. Another positive aspect is that this was calculated for a very long time span of 69 years.
The average gain was therefore not merely driven by a few outlier years. On the contrary, a strong rally has taken place quite frequently – what more could an investor ask for?
Let us take a closer look at the details. The bar chart below shows the return of the S&P 500 Index between 26 October and 03 January for every year since 1950. Green bars denote years in which a positive return was achieved, red bars years in which losses were recorded.
S&P 500 Index, percentage return achieved between 26 October and 03 January in individual years since 1950. Gains clearly predominate
As you can see, the green bars denoting positive returns clearly predominate. However, there were also a few years in which the S&P 500 Index declined during this time period. One of these declines occurred last year, as indicated by the last red bar on the chart.
A Particularly Favorable Seasonal Pattern
There exists no stock market rule that always works. Nevertheless, the high win rate and the well above average gain represent strong evidence that the year-end rally is a particularly favorable seasonal pattern.
If you want to know how your favorite stocks tend to perform during the year-end rally, you can find out with just a few mouse clicks at www.app.seasonax.com or with the help of the Seasonax app at Bloomberg or Thomson-Reuters Eikon.
Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com , which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the now defunct gold and silver fix in London. His Stay-C commodities trading strategy won several awards in Europe; it was the best-performing quantitative commodities fund ever listed on a German exchange. You can find an introduction to the Seasonax app and in-depth information on what it can do here. Furthermore, here is a complementary page on the web-based Seasonax app, which costs less and offers slightly different functionality (note: subscriptions through Acting Man qualify for special discounts – for both the Bloomberg/Reuters and the web-based versions of the app. Details are available on request – simply send a note to [email protected] with the header Seasonax!).
Charts by Seasonax
Chart & image captions (where indicated) by PT
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