Stock Market Performance by Intra-year Phase
Posted in Calendar Effects
October 16, 2009
The full-year the Trading Calendar suggests that the U.S. stock market may have three phases over the calendar year. What is the typical performance of the market during each phase? Using daily S&P 500 index closing levels from January 1950 through October 15, 2009 (nearly 60 years), we find that:
The following chart shows the average year-to-date percentage change in the S&P 500 index for the entire calendar year since 1950 and since 1990 through October 15, 2009 (see the the Trading Calendar for some adjustments made to the data). There appear to be transitions among phases in early June (trading day 107 and late October (trading day 208). Phase definition is stronger in recent data than in older data. Perhaps it is self-reinforcing.
The next two charts show the average return of the S&P 500 Index by intra-year phase using the early June and late October break points, with one standard deviation variability ranges as indicators of return risk. The third phase is considerably shorter than the first two phases, so a smaller variability range is unsurprising. Results support the conventional wisdom that market conditions are especially favorable from late October through the end of the year.
Is the result robust across three 20-year subperiods?
The final chart summarizes average S&P 500 Index returns by intra-year phase for three subperiods of 20 years each (the third subperiod does not include 2009 for the second and third phases). The general phase relationships are stable. The trend of the middle phase suggests the possibility of a self-reinforcing belief.
In summary, evidence from simple tests supports some belief in the conventional wisdom that the best time to invest in U.S. stocks is from late October through the end of the year.
To the extent that the distributions of returns by phase are non-normal, the risks indicated by the above variability ranges may be understated.
