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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.

----

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”

---

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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Wall Street History

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.

----

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”

---

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