Listen to enough talking head chatter every week or month, and you’ll hear a number of calendar-based market clichés. “Sell in May, go away.” “Santa Claus Rally.” “January Effect.” As we enter a new year, we thought it may be interesting to highlight some statistical data on monthly performance over the past 80 or so years to give you an idea which months and portions of the year have been the most promising for investors, and which months have proven discouraging.
First, let’s present a table with the monthly data (1930 through 2012) for the S&P 500.
A few things stand out. First, right now we’re in the middle of the “sweet spot” of the bat when it comes to seasonal performance. December and January have proven to be the best months performance-wise historically. Even more interesting, this performance has been among the most consistent of the months in terms of performance. Three quarters of the time, December has been positive, whereas January has witnessed positive performance approximately 64% of the time. December and January have two of the lowest standard deviation figures among the months and the two of the lowest spreads between the historical maximum return and the historical minimum return. Hence, there’s definitely something to the notion of a Santa Claus rally, and a general carryover of the good cheer into the New Year.
The December-January party has typically led to a February hangover of sorts. February is the third worst performer behind September and June. Just as December and January are relatively consistent positive performers, February has been consistent in its dourness with the second lowest standard deviation among all the months. It isn’t surprising to think that there would be some consolidation after two strong months. Nonetheless, historically, February consolidation has allowed the market to regroup for solid spring performance.
Is there something to the “Sell in May, go away” maxim? Definitely. September and June are the two worst performance months of the year, with May coming in fourth overall (September is the only month that has produced a negative median return historically). May, June, July, and September are among the worst months in terms of percentage of positive months. And, the volatility of the return streams from May through October is higher than witnessed during the period between November and April. Overall, since 1930, the average May to October return is 1.84% vs. 4.76% for the November to April period. The median return is 2.76% vs. 5.24%.
As with any bit of statistical analysis, nothing is ever set in stone. There’s always variance making it very dangerous to make big market gambles in any given year based upon factors such as these. For all we know, performance during the summer of 2013 could prove to be the best of all time. In any case, there’s clearly been a distinct performance advantage historically for the winter and early spring months in contrast to the summer and fall. And, when it comes to individual months, December has been a consistent, reliable booster for portfolio managers’ performance. For those with longer time horizons, understanding and incorporating data such as this could help shape certain decisions, such as tweaking asset allocation processes or deciding on the timing of hedges.
