Is there seasonality to equity market returns over time and, if so, is it repeatable, measurable, and significant? We turned to one of our favorite sources for market information, “The Stock Trader’s Almanac” to find the answers.
Methodology
We sourced monthly return data for the S&P 500 Index back to January of 1950. Exhibit 1 shows returns by month (January – December) for the S&P 500.
Exhibit 2 shows the cumulative return in each month since 1950 ranked in descending order.
We observe the strongest month of the year to be April with a total return of 116.6%. The worst month of the year was September with a total return in the month of -30.3%.
When looking at the S&P 500 monthly return data, the monthly average returns are strongest in these months: April, November, December, January, July, and March. Over the entire 70.5- year sample, a staggering 93% of the cumulative return was generated in these six months. See Exhibit 3 below.
Similarly, equity returns in the fourth quarter of the year plus equity returns in January are also very strong, contributing almost 60% of the total return since 1950. Exhibit 4 shows the contribution to S&P 500 total return from these 4 months.
Conclusion
There is seasonality to equity market returns. This seasonality is repeatable, measurable, and significant.
From 1950 - 2020, February, August and September are the only months that generated negative monthly average returns for the S&P 500. Similarly, April, November, December, January, July, and March generated the strongest monthly returns and contributed 93% of the total S&P 500 return stream from 1950 - 2020. Finally, returns generated in the fourth quarter of the year plus January (four sequential months) contributed almost 60% of the total annual S&P 500 return stream from 1950 - 2020.
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