With the stock market, there is always the temptation to think that seasonality is fate. Example: The common adage is that September is the worst month for stocks, which is statistically true. Last September, the S&P 500 fell 4.8%, bolstering the bad reputation of the month.
But rest assured: we are now entering the best time frame, according to CFRA chief investment strategist Sam Stovall, from November to April. The notion of November-April, popularized for the first time in The Almanac of Stock Traders, argues that this period has the highest average price change of any rolling six-month period. On the other hand, the interval from May to October is the worst, as illustrated by the phrase: “Sell in May and leave. This unhappy six month also contains September, that magnet for financial disasters, for example, the onset of the financial crisis.
Through CFRA, since 1945, the S&P 500 has risen on average 6.8% in price from November to April, compared to the average gain of 1.7% from May to October. And since 1995, when the S&P 500 rose 7.1% on average from November to April, the best performers, outperforming the index as a whole, have been mid and small caps, growth stocks and consumer discretionary, energy, industry, materials. , and technological sectors. In addition, 98% of the 147 S&P 1500 sub-industries, which have been in existence for more than 15 years, also increased their prices between November and April.
In a research note, Stovall points out that this month the S&P 500 erased all of September’s losses and hit a new high on Tuesday. “Due to the recovery and this favorable seasonal pattern, history says, but does not guarantee, that the market is expected to continue to reach new highs until the end of the year,” writes Stovall.
He credits the S&P 500 with better-than-expected earnings per share (EPS) in the third quarter, which is now expected to climb 29.9%, an improvement from the 26.1% growth expected on September 30.
Who were the biggest winners during these periods from November to April? Stovall lists: coal producer Consol Energy, auto parts maker LKQ, department store chain TJX, and heavy equipment company Caterpillar. They’ve all had their ups and downs, that’s for sure. Despite the focus on coal in an era of heightened climate awareness, Consol has more than quadrupled this year, although it has been down slightly for the past five years.
What happens to the market when a pullback occurs in September (between 5% and 10%)? From the October low to the December close of every calendar year since 1945, the S&P 500 has risen an average of 7.2% and recorded price increases for 92% of those years.
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Tags: CFRA, market timing, markets, Sam Stovall