Stock Market Performance by Intra-year Phase

January 4, 2016 • Posted in Calendar Effects

The full-year Trading Calendar suggests that the U.S. stock market may have three phases over the calendar year, corresponding roughly to calendar year trading days 1-84 (January-April), 85-210 (May-October) and 211-252 (November-December). What are typical stock market returns and return variabilities for these phases? Using daily S&P 500 Index closes during 1950 through 2015 (66 years), we find that:

The following chart summarizes average S&P 500 Index returns by phase over the entire sample period, two subperiods and even (election) and odd (non-election) years. Results generally confirm the conventional wisdom that stock market performance tends to be relatively weak during the middle part of the year.

What about the variability of returns for these intra-year phases?


The next chart summarizes standard deviations of S&P 500 Index returns by phase over the same sample and subsamples. Results suggest that not only does May-October (November-December) tend to be a weak (strong) phase, it also tends to be the most (least) variable.

What about the reward-to-risk ratio?


The final chart summarizes the reward-risk ratio for the S&P 500 Index by phase (average phase return divided by standard deviation of phase returns) for the same sample and subsamples. Results generally confirm the conventional wisdom that the stock market tends to perform well during the early months of the year, poorly during the middle months and very well during the final two months.


In summary, evidence from simple tests supports some belief in the conventional wisdom that the middle (end) of the year tends to be the worst (best) time to invest in U.S. stocks.

Cautions regarding findings include:

  • The analysis does not test any trading strategy, including portfolio construction costs and market entry/exit frictions.
  • The sample and especially the subsamples are small for reliable inference, especially in terms of broad market conditions (such as bull/bear, and high/low inflation regimes).
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