As we move toward summer, you should review your seasonal strategies, as we are once again reminded of the familiar market adage "Sell in May and Go Away," and the uncanny historical bias associated with it.

We’ve discussed market seasonality many times over the years. It exhibits an impressive trend in terms of magnitude, consistency and longevity. We are now entering another of those seasonally biased periods (May through October).

There's no question that the November to April period has provided substantially better returns than the May through October period. Whether you average it out, annualize it, or compound it, there is clearly a huge differential between the average six-month returns during these contrasting seasonal periods.

Since 1945, the S&P 500 has posted its strongest six-month average return from November 30 through April 30, recording an advance of about 7%. However, from May through October, the market has traditionally suffered a serious seasonal slump, falling about 0.1% on average. And if there is to be a big correction in any given year, it almost always takes place in the May to November period.

Additional Market Seasonality Notes:

  • Since April 30th, 2000, the Dow Jones Industrial Average DJIA is up over 125.11%. However, the seasonally weak periods during those years are cumulatively down -3.87%, while the seasonally strong periods have produced cumulative gains of 134%!

  • There have been only three times when the "good six months" have lost more than 10% (1969, 1973 and 2008), but with respect to the "bad six month" time period there have been eleven losing efforts of -10%, or more.

  • There have been fourteen instances since 1980 where the "good six months" have posted a double-digit return, while five of those returned more than 20%.

  • Interestingly enough, following those times when the "bad six months" did produce double digit losses, the "good six month" period afterward lost more than 1% only once (2008) and on four occasions actually posted double-digit positive returns.

Bottom Line

Market seasonality is very interesting and does expose a bias within the market that many investors are not aware of. We are coming off a seasonally strong period in the market which saw the DJIA produce a gain of 3.36%.

As we enter a historically weak period in the market, and with risk indicators in elevated conditions, you may wish to consider seasonal strategies that can position your portfolio more defensively, toward lower beta equity exposure.

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George Kiraly Jr., CFP®, MBA is a NAPFA-Registered Financial Advisor.

Disclosure: George Kiraly Jr., CFP®, MBA is the Founder & Chief Investment Officer of LodeStar Advisory Group, LLC, an independent Registered Investment Adviser located in Short Hills, New Jersey. George Kiraly, LodeStar Advisory Group ("LodeStar"), and/or its clients may hold positions in any ETFs, mutual funds or investment assets mentioned above. Any projections, market outlooks or estimates in this material are forward-looking statements and are based upon certain assumptions that are solely the opinion of LodeStar. They should not be construed to be indicative of the actual events which will occur. Further, any information regarding portfolio composition, portfolio composition methodology, investment process or limits, or valuation methods of evaluating companies and markets are intended to be used as guidelines which may be modified or changed by LodeStar at any time in its sole discretion without notice. Asset allocation and diversification does not assure profit nor protect against loss. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. The above commentary does not constitute individual investment advice. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.

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