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Wall Street History
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04/07/2006
Another Look at Seasonality
While I ran my “seasonality” piece last November, as we approach the 5/1–10/31 ‘soft patch,’ at least historically speaking, I just wanted to give you a heads up on what you’ll undoubtedly be hearing the next few weeks.
What I have done this time is add a little more meat to the story in giving you data for the S&P 500 the past 8 years, in good times and in bad.
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Back in 1986, Yale Hirsch, now Editor at Large of “Stock Trader’s Almanac,” discovered one of the most powerful principles of investing, that being if you invest only during the November 1 – April 30 time period you will have far more success than investing in the corresponding period, May 1 – October 31. And it’s not even close.
For example:
If you invested $10,000 in the Dow Jones Industrial Average on May 1, 1950 and took it out each October 31, repeating this exercise through 2004, your portfolio after 54 years would have actually shrunk $502 to $9,498. [Not including dividends.]
But, if you took $10,000 and invested it only during November 1 – April 30, your portfolio would have grown $499,933.
*For the S&P 500 the results are $357,785 and $7,461.
The key is the power of compounding, as well as the fact that the four top months since 1950 for both the Dow and the S&P are November, December, January, and April, all within the 11/1- 4/30 timeframe. [For the S&P it’s five months, including March.]
Monthly returns for the Dow Jones January 1950 – June 2005
November ..1.7% avg. percentage change December ..1.8% January ..1.3% February 0.2% March 0.9% April ..1.8%
May 0.1% June ......-0.1% July 1.0% August ..-0.1% September....-1.1% October ......0.6%
Returns for the S&P 500 January 1950 – June 2005
November.....1.7% December .1.7% January .1.4% February ..-0.0% [-0.02] March ...1.0% April .1.3%
May ..0.3% June ..0.2% July ...0.8% August ..0.0% [0.02] September...-0.7% October .....0.9%
Nasdaq January 1971 – June 2005
November ..2.1% December ...2.1% January ...3.7% February .0.6% March .0.3% April ...1.1%
May 1.2% June 1.2% July ...-0.4% August 0.2% September .-1.0% October ..0.6%
Source: “Stock Trader’s Almanac 2006”
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Following are levels for the S&P 500 at the seasonal turning points related to the above. I have included the total return for the S&P 500 for the full year to remind you of the overall environment.
4/30/97.. .801 [S&P 500] 10/31/97 .914 [S&P +33.4% for all of 1997] 4/30/98 ..1111 10/30/98 1098 [S&P +28.6% for 1998] 4/30/99 ..1335 10/29/99 1366 [S&P +21.0% for 1999] 4/28/00 ..1452 10/31/00 1429 [S&P -9.1% for 2000] 4/30/01 ..1249 10/31/01 1059 [S&P -11.9% for 2001] 4/30/02 ..1076 10/31/02 .885 [S&P -22.1% for 2002] 4/30/03 ...916 10/31/03 1050 [S&P +28.7% for 2003] 4/30/04 ..1107 10/29/04 1130 [S&P +10.9% for 2004] 4/29/05 ..1156 10/31/05 1207 [S&P +4.9% for 2005] 3/31/06 ..1294
So what did we learn from this little exercise? Well, take a look at 1998, a great year for the market. But the seasonally weak period, 5/1-10/31, was just that as the S&P actually declined during that time in the middle of a +28% year.
Or look at 11/1/01-4/30/02. The S&P actually rose, in keeping with history, even though 2001 and 2002 were dreadful years for the index.
But now you have to determine if in the midst of a sizable current rally will the market tread water, or decline, from 5/1- 10/31 this time around? I’ll save my own thoughts for “Week in Review.”
Wall Street History will return next week a look at kerosene.
Brian Trumbore
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