06 Nov COTW: Stock Market Seasonality: As Helpful as Weather Forecasts
The chart below can be downloaded here.
Seasonality is commonly referred to as “a characteristic of a time series in which the data experiences regular and predictable changes that recur every calendar year”. The dashed line in the chart below shows the average daily returns for every calendar year from 1984 through this week. The shaded area on the right axis shows the same data, just on a zoomed-in scale. If we look at the average annual returns for the last 35 years, there does appear to be a seasonal pattern; however, if we look at the underlying data, finding regular and predictable pattern becomes far more challenging… arguably impossible.
Averages can mask meaningful volatility in the underlying data that reduce the statistical utility of lumping everything together. As such, forecasts based on averages and the patterns they create should always be taken with a grain of salt. Cue the joke about the statistician who drowned crossing a river that was on average only 6 inches deep.
With that important caveat aside, the seasonal pattern most relevant this time of year is the December rally that tends to, on average, drive gains for stocks from mid to late November through the end of the year. We still believe the December rally is something to consider, especially in the context of risk management or tax-loss harvesting, but we would advise against making long-term allocation decisions based on this data.
SpringTide Partners, LLC is a Registered Investment Advisor with the state of Illinois and other states jurisdictions where required. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. All information contained herein is for informational purposes only and does not constitute a solicitation or offer to sell securities or investment advisory services. All investing carries risk including risk of principal loss. All statements made on this website are opinions of SpringTide Partners, LLC and are subject to change. SpringTide Partners, LLC assumes no responsibility for the accuracy of the data included. Statements made on website shall not constitute investment advice.