The Seasonally Strong Period in the Stock Market

The trick-or-treaters are gone. The World Series Champion has been crowned. That means that it must be November. It also means that the seasonally weak period in the stock market is over and we are heading into the seasonally strong period for stocks. You have probably heard of the old adage, "Sell in May and go away." It was born from the broad observation, that historically the U.S. stock market performs far better during the November through April time period than it does from May through October. 2014 turned out to be one of those years where this adage did not hold true. At times (especially from late September until mid-October), it certainly felt as if it was the weak period in the stock market. But in actuality, the Dow Jones Industrial Average was up 4.88% from May through October. Good thing that we didn't "go away"!

With that being said, we are now entering the strong six month period in the stock market. There is no question that the November to April period has historically provided substantially better stock market returns than the May to October period. Here is something fascinating about this stock market seasonality: the strong six months of the year have actually equaled the pace of the average annual compounding return of the Dow Jones Industrial Average overall since 1950. The Dow began 1950 at 200 and closed October 2014 at 17,390.52. This is an average annual compounded return of about 7.11%. The seasonally strong six months have produced an average annual compounded return of about 7.03%, while only being invested 50% of the time! Along the way there have been down periods in the seasonally strong months, and up periods in the seasonally weak months, but one cannot miss the historical bias evident here. While this strategy does have a very strong historical bias to it, it is no way to manage your investment portfolio. So as we enter this seasonally strong period, my indicators continue to say that U.S. stocks and international stocks are currently the strongest asset classes. Rest assured that these indicators, not market seasonality, will tell me when that is no longer the case.