Weekly Update

Reviewing the market’s seasonal patterns


Published September 3, 2021

Below is an overview of the seasonal patterns of the stock market.  This review from VantagePoint overlays 15 and 37-year charts to identify periods of strength and weakness. Every year is unique, of course, but there are general tendencies as the oft-noted “sell in May” reflects. Seasonality does not play a role in our models.  But, as students of market data and history, we do find it interesting to be aware of.

“Typically, we look at price charts chronologically, one day follows the next and each month follows the prior in sequence. Chronological charts show an asset’s price path over time and provide a lot of information to technical traders. Such charts reveal trends and support and resistance areas, for example. Yet, we can also look at an S&P 500 seasonal chart to gain insight into stock market information not readily available on chronological charts.

A seasonal chart of the S&P 500 shows when the index (or S&P futures) tends to move higher and lower, or peak or bottom, at certain points in the year.

Instead of looking at the last 20 years of S&P 500 data in chronological order, what if you took each one year period, January to December, and printed it on a transparent slide. Then, stack all those transparent slides on top of each other. Doing this would highlight any period of the year which tends to be strong or weak. Luckily, we don’t need to do that. We can just take an average of the last 15 or 20 years to reveal whether there is a tendency to rise or fall at different times of the year.

Below we look at seasonal patterns for the S&P 500 futures and S&P 500 Index.

Stock Market (S&P 500) Seasonal Patterns

The stock market has seasonal tendencies, and we can see them by looking at the following seasonal chart of S&P 500

The chart shows how the price tends to move at different times of the year.

  • Since the stock has a long-term upward bias, the seasonal charts reflect this. The S&P 500 rises, on average, year-over-year which is reflected in the chart moving from the lower left to the upper right of the chart.
  • The S&P 500 usually moves lower in January, putting in lows near the start of February. The price then starts to rise, although February also isn’t usually a great month, as shown in the chart below.
  • By mid-March prices are often rising and often peak in early May.
  • The start of May is usually when a weaker phase for the S&P 500 begins. The weak period typically lasts until late August. The only exception is that mid-June to mid-July tends to see some strength, but overall not much progress is made during the summer months. This explains the trading expression “Sell in May and go away.”
  • In late-August stocks are often forming bottoms and starting to advance.
  • Mid-September to early October is also typically a weaker period.
  • It not until we get into October that prices really start to move out of the summer lull. Prices are typically strong through to the end of the year.

The chart below provides a more general guideline of which months tend to be good or poor for the S&P 500 index. As noted above, some pretty big moves start early, in the middle, or late in a month, so the prior chart is more detailed in that regard.

The chart below provides other information though. The number on the top of the column shows how often (%) the price moved higher in that month over the last 20 years. The number at the bottom of the column gives the average percentage rise or decline.

Source: Stockcharts.com

While this chart is a more general version of the chart above, it essentially shows the same data, just in a different way.

The chart highlights that early in the year the S&P 500 is generally weak. It strengthens between March and April, and then weakens from May through to the end of the September, with the exception being July which tends to show some strength. The end of the year, October to December tends to be strong, despite having had some front-page worthy crashes in October.”

Market Update

Investors carried over their good cheer from the prior week into Monday’s session to leave the indexes +0.4% higher. Growth stocks, many found in the Nasdaq, continued their recent outperformance as interest rates have pulled back. Fed Chair Powell’s speech the prior Friday ignited a short-term rally as investors read his comments as being cautious on any interest rates hikes for the coming quarters. Stocks posted a flat finish Tuesday to bring a successful month of August to a close. The first trading day of September was also flat with investors looking ahead to the monthly jobs report for the next clue on the economy. A sharp rise in oil prices brought money into energy stocks Thursday while a tepid unemployment report kept investors believing into a continuation of easy monetary policy. Stocks lifted +0.4%. Friday brought the jobs report and a mixed reading from investors as stocks ended the week on a flat note.

Another modestly positive week for stocks. The S&P 500 added +0.63%. The Nasdaq 100 (QQQ) rose 1.47%. Smallcap stocks lifted +0.68%.

Warm wishes and until next week.