The Market’s Mid-Year Cycle

Earlier we pointed out that the stock market has had a very dramatic effect at the turn of each month. Since 1932, most of the S&P 500’s capital gain has come during a seven-day period at the turn of each month—specifically, the last four trading days and the first three trading days of each month. This represents about one-third of the total trading days. During the rest of the month, the stock market actually lost money.
Investing in just the last four days and first three days of each month would have returned over 63,000% (not including trading costs). Annualized, that’s 8.6%. However, if you consider that it’s really only 32% of the time, the true annualized rate is over 28%. The rest of the month—the other 68% of the time—has resulted in a combined loss of close to 78%.
It is important which month we’re talking about. The most dramatic surge comes at the turn of the year. During that seven-day stretch, the market has gained an average of 1.59%. The mid-year seven-day period is the fourth-best averaging a gain of 0.60%.
A few years ago, I ran the numbers on the entire history of the Dow and found that the Dow gains 1.37% between June 27 and July 6. Historically, there’s been an average gain of 4.17% from June 27 to September 6. Historically, the Dow has peaked on September 6 and pulled back until late October (and it’s not just 1929 distorting the series that causes this).

Please note that I don’t see these historical quirks as useful trading strategies. What I think is important is that the market clearly sees turning points at the different times of the year.

Posted by Eddy Elfenbein on June 30th, 2010 at 3:31 pm

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