ACTV - The Market In March April And May?
Summary
- Some well-known seasonality exists.
- The winter months vs. the summer months.
- S&P 500 has moved smoothly moved for four months (Oct - Jan).
- The seasonality was distorted by the external factors.
- 4.5-month Uptrend is in danger.
Introduction
Any seasonality in the stock market has not been accepted by the majority of investors, but a few things are not ignorable for most shrewd market participants, including me. The focus is:
- The six-winter months (December through May) are strong while the six-summer months (June through November) are weak.
- The core three months (March, April, and May) in the Winter months may ascend.
The Winter (December - May) vs. The Summer (June - November)
December is normally a strong month mainly because long-expected annual bonuses of Wall Street companies and major industrial firms boost shopping, tourism, and vacationing.
The bullish market usually continues in both December and January: Although there are no causal relationships, Santa Clause rally in 2018 and 2022 would lead a strong market in the following year.
Most major projects of government and big enterprises are set in December through May. Tax returns, automatic 401(k) contributions, and rebalancing boost market activities in general. As a result, a Wall Street adage, says, "Sell everything in May, and buy back in November." This kind of an on-off strategy is not popular, but most investors keep this somewhat strong seasonality in mind.
On the other hand, in the summer, no major projects are carried out. For some natural disasters, government, insurance companies, and financial institutions takes some relief efforts, but they are short-lived, passive, and lack of interactions with other related industries. Some follow-up supplementary programs are launched, but their volume and scope are far low, compared to the original project, started in the winter months.
Three Months (June, July, and August) are normally doldrums in investing. Because many big players are on vacation.
S&P 500 Index Movement Between October 03, 2022 and February 24, 2023
Table 2 was calculated, using Table 1 (in Reference in the bottom) whose data run from October 03, 2022 to February 24, 2023. Since it's too long, it is put as a reference.
As shown in Table 2, S&P 500 index has been resilient against short sales, rebalancing, inflation, rake hikes, and continuing the Russia-Ukraine (R-U) war. Monthly S&P 500 have steadily climbed on the average base until a couple of weeks in February. Although the bad sell-off in the last short week (Feb 21 thru Feb 24), the average was above the 4,000 level.
it's easy to "forecast' the immediate run and a long run: In the immediate run, we counter a random-walk process, and in a long run, the mean reverse and contrarian guide work out. The time horizon between these two cases, in an intermediate run, say, a few months (1 - 3) or a couple of quarters (3 - 6 months), we can't predict anything. It's really depending on a probability. That's why we call investing is a probability game.
The percent-change column in Table 2, for four months it moved smoothly, 0.38%, 0.26%, 0.28%, and 0.36%, and then in February, it fell sharply to negative (minus) 0.15%! What do you think about this abrupt turning point? Bears and bulls interpret it the opposite way each other.
| Table 2. S&P 500 Monthly Movements |
| MONTH |
| CLOSE AVERAGE |
| % CHANGE AVERAGE |
| # DAYS |
| Oct. 2023 |
| 3,726.05 |
| 0.38% |
| 21 |
| Nov. 2023 |
| 3,917.49 |
| 0.26% |
| 21 |
| Dec. 2023 |
| 3,912,38 |
| 0.28% |
| 21 |
| Jan. 2023 |
| 4,166.62 |
| 0.36% |
| 20 |
| Feb. 24, 2023 |
| 4,091.86 |
| -0.15% |
| 17 |
| NOTE |
| 1. Data Source: Yahoo Finance. |
| 2. Author made the Table. |
The Historical Seasonality is Distorted in 2020 - 22?
The answer is Yes. As shown in Table 3, in the Covid Pandemic years (21 - 22), the percentage from February to March was a whopping change, 5.87%. The figures went down to 4.32%, 3.62%, and 3.17% when one year prior 2020 gradually added.
Boosted March numbers declined -2.81 and -1.48 to April and to May, respectively. This trend followed in (2019 -22) (where May decreased more than April), (2018 -22), and (2017 - 22). Only (2014 - 16) followed this trend with 5.97 % increase. Other historical evidence disagreed this trend, recording -0.60% and -0.60% for (2017 - 19) and (2011 - 13), respectively.
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| The seasonality explained above was somewhat distorted by impact of the external forces such as stubborn inflation, the R-U war, recession fear. Historically the core months, March, April, and May, had been strong with automatic retirement contributions and tax returns, but, Table 3 clearly indicated that this spring would not be the case. The 4.5 months (or 18 weeks) Uptrend is in danger?Yes, indeed, according to the verdict of Table 1: "m" and "P" were even on 2, 3, 4, and 7. "m" had an edge on 1. And "m" had a big edge on 5 and 6.
Concluding RemarkDid you walk around on your yard this time? Some trees started changing their trunk color, and shot some buds. Isn't it amazing? Huge branches are growing from these small buds, and leaves and flowers appeared. Many years ago, one cold night, these buds were killed, so the bare trees should remake the buds. Can you imagine how hard the tree make buds? It must be much harder than investing strategies we design. The spring months, March, April, and May, are cruel, because Korean political bloody events occurred in these three months: 3.1, 4.19, and 5.16.: On March 01, in the early 1900, a young lady led Korean people to be against Japanese colonialism. On April 19, in the early 1960, the Lee Government fired the peaceful demo-students. On May 16, in the same year. General Park took power. March is a crucial month to determine the direction of the market, even though the established norm in the market was affected by the Fed, the R-U war, Covid-19, we have to prepare for our investing plan in advance. I sit on the online savings accounts (70% of capital, earning 3.75% APR) so I'm complacent. The most important virtue in investing is we have to be in action when the market hints. Reference
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For further details see:
The Market, In March, April, And May?