Nobody knows exactly why the stock market has an uncanny tendency to deliver lousy returns from May through October, but post stellar gains from November through April.
The difference is staggering. According to Stock Trader’s Almanac, $10,000 invetsed in the Dow Jones industrial average from November 1 to April 30 every year from 1950 to 2008 would have grown to $474,305, assuming the money was switched to fixed income investments from May 1 to Oct 31.
But if the $10,000 was invested in stocks from May 1 to Oct. 31 and parked in fixed income for the other 6 months, it would have shrunk to $8,012.
Several theories attempt to explain the market’s seasonal trends. During the summer, fund managers are lounging at the cottage instead of buying stocks? Markets often rebound in December when investors are in a cheerful mood? In Canada, the registered retirement savings plan season gives stocks another boost.
Skeptics say the seasonal trends may be nothing more than a product of “data ming”. If you examine enough data, patterns will emerge, even if they are just a product of chance.
Attempting to time market cycles is not something that’s conducive to sleeping at night!
People can say it’s a coincidence, but it’s been a coincidence for a very long time.
Posted by: Paul Robbins
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