Is Seasonal Investing a Good Strategy?

What is Market Timing? Seasonal Investing

The Calendar is Key When it Comes to Investing. But How Much Should Seasonal Investing Matter?

The old investing rule of ‘buy and hold’ no longer works in our global economy, where news from across the world can rock our markets. And in addition to the news, there are myriad seasonal investing trends (movements during certain times of the year) to consider. Smack in the middle of one of them, should you really pay attention to any of them? That all depends. First, it’s important to know what seasonal investing trends are out there. There are a few that are supported by decades of data.

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One of the contributors to my Wall Street’s Best newsletters is Jeffrey Hirsch, editor of The Stock Trader’s Almanac. Jeffrey—like his father Yale, who founded the newsletter—is a statistician. He parses market data and is an expert of seasonal investing. In his newsletter, Jeffrey often addresses many of the old stock market adages, including the five below.

Five Seasonal Investing Examples

  • Santa Claus Rally (stock market rallies in December, usually the last week). The truth: According to The Stock Trader’s Almanac, since 1950, the average gain for this period of the year has been 1.3%, and since 1969, it has generated positive returns 75% of the time. That was true this past year – stocks were up 3.7% in December 2020.
  • Sell in May and Go Away (November 1 – April 30 are considered the best months of the year for the markets). The truth: A report by Barclays found that average returns from 1970-2017 were stronger between November and April than they are in May through October.
  • The January Barometer (as goes January, so goes the rest of the year). The truth: According to Fidelity, in regard to the U.S. markets, “an up January has generally been bullish for stocks, particularly when the market has gained more than 5% in January.” Since 1945, the January barometer held true 75% of the time when the market was up in January. But, declines in January have not reliably predicted a weaker year.
  • The Presidential Market Cycle (first year following a presidential election is usually the worst, with the third and fourth years seeing above-average performance). The truth: History bears out the cycle; but with President Trump, the pattern changed. We’ll see how things go in Joe Biden’s first year in office.
  • October is a Scary Month (many market crashes have occurred in October—Panic of 1907, Black Tuesday 1929, Black Thursday 1929, Black Monday 1929 and Black Monday 1987). The truth: October is the most volatile month. According to CFRA Research from 1950 to present day, “The S&P 500 on average registers more daily moves of at least 1% in October than in any other month.” On the flip side, however, going back to 1950, the S&P 500 has averaged a gain of 0.7% in October, according to The Stock Trader’s Almanac. Stocks declined 2.8% this past October.

In addition to these market adages, there are many other seasonal trades, such as in commodities—sugar, natural gas, heating oil, grains, coffee, copper, etc.—that are influenced by seasonal weather, as well as patterns, cycles and trends in consumption, supply and demand. And there are companies like amusement parks whose profits are made in the spring and summer, giving their stocks a seasonal boost (though not much this year). Or retailers whose big months are the end of summer and holidays.

But when it comes to seasonal investing, timing is everything and no one is perfect at market timing. Unless you’re a day trader or a short-term investor, the calendar should only be a minor consideration in deciding whether to buy or sell stocks. Best to stick with the trends, the charts and the fundamentals of the companies in which you’re invested.

What are your thoughts on seasonal investing strategies? What have you experienced?

Nancy Zambell

Secure Your Financial Freedom

Nancy Zambell, Chief Analyst of the Financial Freedom Federation, has spent more than 30 years helping investors navigate the minefields of the financial industry. Nancy's book, Make Money Buying & Selling Stocks is an introduction for new investors and a reminder for experienced investors on how to profit in the stock market.

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*This post has been updated from an original version, published in 2019.


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