Stocks typically face headwinds in the six-month period beginning in May and lasting through October which created the adage “Sell in May and Go Away”.
Much like the weather, the stock market also follows seasonal trends. At Republic, we believe seasonal market trends are one factor utilized to assess appropriate levels of market exposure. While long-term Republic clients are aware of our bias towards market seasonality, below we’d like to revisit historical seasonal trends. The chart below shows the cumulative return of $100 invested in the S&P 500 going back to 1945 and then broken out by the six-month windows of October through April and May through November. The chart clearly shows that most of the gains over this long period of time have come from October through April, with this period contributing significantly more to the overall gain than the paltry returns of investing only in the May through October period.
Looking at various windows of time, the S&P 500’s median return is considerably higher in the November through April period than it is in the May through October period, and the results aren’t even close. The results are especially strong since 2009, with the S&P 500 generating a median return of 11.54% over this time from November through April while only generating a median return of 2.95% in the months of May through October.
Seasonality also historically helps put the market odds in your favor. In the period referenced above, November through April returns were positive 89% of the time while they were only positive 67% of the time in May through October.
Coupling seasonality with the four-year presidential election cycle raises extra caution this year. Of the four calendar-year presidential cycle, the mid-term year (2018), generates the weakest return during the May to October period of any of the four years historically (the silver lining is that the mid-term “in-favor” season beginning this upcoming October is the strongest of the four year cycle).
In summary, we believe that the turning of the market’s “season” to the less favorable period brings about an added level of caution given the current conditions we observe at this point in 2018. With caution, we move closer by the day towards summer. If you are a current client and would like to discuss how seasonality affects your portfolio, please let us know. If you are not a client and would like to learn more about how seasonality plays a role in our portfolio construction, don’t hesitate to reach out.
IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice. If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.