Seasonal Headwinds

Seasonality is not a perfect science. However, it can be helpful to be aware of the times of year that have been historically weak/strong for the market on average.

(Don't worry, I won't torture you with a cliché quote about history repeating itself.)

So far in 2019, stock market seasonality has served as a reasonably good guide. The old adage, "Sell in May and Go Away"  worked like clockwork this year, with the S&P 500 pulling back 7% between May 1st and June 3rd. This was the most significant pullback year-to-date. The market went on to recover, but it's currently only +1.44% above that May 1st high, so not much forward progress has been made.

With that said, we're now entering one of the most challenging seasonal periods for the S&P 500.

Below is a seasonality chart of the S&P 500 from EquityClock.com. The chart shows how the S&P 500 tends to perform throughout the year using data from the past 20-years. You can see that the index tends to dip between late-September and mid-October.

Here's another way to visualize this seasonally weak time of year. Ryan Detrick of LPL Financial Research shared this table on Twitter. It shows how often each day of the year has been higher for the S&P 500 over the past 20 years. Ryan highlights September 17th - 25th to show that it's one of the largest clusters of red on the table.

Ryan also shared this chart to illustrate seasonality during Pre-Election years like 2019. This is a fascinating perspective because it combines both seasonality as well as the Presidential Cycle.

Last week, Seasonality Expert, Jeff Hirsch wrote this short blog post focusing on the market's performance in October of Pre-Election years. He introduces the term "Octoberphobia" to describe the sort of PTSD that investors feel as a result of historic crashes occurring in October like 1929 and 1987.

The good news here is that in all of these seasonality charts, the S&P 500 tends to experience a strong rally, once October is in the rear-view mirror. Below, Callum Thomas suggests that we could be in for one last dip before a Q4 rip.

It's hard to be bearish with the S&P 500 knocking on the door of all-time highs. However, it would be prudent to anticipate some weakness over the next few weeks if history is any guide. We'll continue to keep an eye on this and report back with any major developments. As always, feel free to contact us with any questions.