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The information contained in this piece is not presented as a “strategy” but rather as an “idea.”  Essentially a starting point if you will, for developing a method to exploit certain seasonal trends that the stock market has exhibited over a number of years.

See also Jay Kaeppel Interview in July 2020 issue of Technical Analysis of Stocks and Commodities magazine

The Indexes

*S&P 500 Index (large-cap)

*MSCI EAFE Index (International)

*S&P 400 Index (mid-cap)

*Nasdaq 100** (OTC stocks)

*FTSE NAREIT All Equity Index (Real Estate Investment Trusts)

**I have monthly total return data for the Nasdaq 100 (ticker NDX) starting in April 1996; so, prior to that date the Nasdaq Composite (ticker COMPQ) is used

Test Period

January 1981 through May 2020.  The start date of Jan 1981 was chosen because that is the first month of data available for the S&P 400 Index, so in order to compare apples-to-apples testing on all indexes are started then.

The Seasonal Periods

Each index has exhibited its own somewhat unique seasonal tendencies over the years.  So, it is correct to point out that the seasonal periods used for each index is chosen with the benefit of hindsight and that, yes, “past performance does not guarantee future results.”  With that caveat in mind, the periods that each index is held appears in Figure 1

Figure 1 – Favorable Seasonal Periods by Index

Results

Figure 2 – Index % total return during Favorable versus Unfavorable periods

Figure 3 displays the cumulative total return for each index ONLY during the Favorable Seasonal Periods highlighted in Figure 1.

Figure 3 – Favorable Periods cumulative % return

Figure 4 displays the cumulative total return for each index ONLY during the Unfavorable Seasonal Periods – i.e., all months of the year NOT listed for a given index in Figure 1.

Figure 4 – Unfavorable Periods cumulative % return

The Key Things to Note:

*The difference in overall returns between “Favorable” and “Unfavorable” periods is stark

*There is no guarantee that any given Favorable period will show a gain, nor that it won’t show a significant loss

*In most cases it is not necessarily accurate to refer to the “Unfavorable” period as “Bearish”, since 4 of the 5 indexes show a net gain during the Unfavorable periods. 

Summary

The idea of being fully bullish during a Favorable period and fully bearish during the Unfavorable period does not guarantee “smooth sailing.”

Still, the bottom line is that seasonality clearly appears to offer investors an “edge.” 

Pushing one’s advantage during the Favorable periods and “picking one’s spots” during the Unfavorable periods does appear to be a good overarching theme for investors looking to “beat the market.”

See also Jay Kaeppel Interview in July 2020 issue of Technical Analysis of Stocks and Commodities magazine

See also Jay’s “A Strategy You Probably Haven’t Considered” Video

See also Video – The Long-Term…Now More Important Than Ever

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented represents the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.