COTW: Stock Market Seasonality: As Helpful as Weather Forecasts

November 6, 2018COTW: Stock Market Seasonality: As Helpful as Weather Forecasts

  • 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”.
  • 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.
  • 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.



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