In this article we will analyze the best day of week and the best time of month to invest in SPDR S&P 500 ETF Trust (NYSEARCA:SPY). First, we will investigate how investing in the middle, beginning, or end of each month can affect returns. Then, we will investigate how investing on a specific day of week can make a difference in your portfolio.
Beginning vs. Middle vs. End of Month
When looking at data that goes all the way back to 1993, we find that market performance is sensitive to the time of month. The three screenshots below show returns if you would have invested in SPY in only the beginning of the each month, middle of the each month, or end of each month since the beginning of 1993 up until today. The green line is the strategy return while the blue line is the return of the S&P 500.
Beginning of Month
If you would have invested in SPY only in the beginning of each month, days 1 thru 10, dating back to 1993 your total return would have been 39.43% (1.62%/year) while SPY grew 271.83% (6.54%/year) over that time.
Middle of Month
Investing in SPY in the Middle of the month, days 11 thru 20, gives us a 33.17% total return. That comes out to 1.39% per year
End of Month
Finally, investing in the end of each month 1993 gives us a 100.25% total return, which is a 3.41% annually. According to the data, on average, invest in stocks at the end of months will give you much better performance as opposed to investing in stocks during the beginning and middle of months.
This trend has lasted since 1993 so there is a likely possibility that it will continue into the future. It is convincing enough that I could consider increasing my long positions in the end of each month.
Day of Week Shenanigans
Below we have constructed a table that compares % returns of SPY if one would have invested in a specific day of the week every year dating back to 2000.
The returns highlighted in green represent the highest for that particular year and the returns in red represent the lowest for that year. The row on the bottom of the graph states the average returns from each day of week from each year.
Monday | Tuesday | Wednesday | Thursday | Friday | Total | ||
2013 YTD | 5.3 | 3.8 | -.18 | 3.95 | 6.59 | 20.89 | |
2012 | 7.15 | -0.09 | 3.27 | .44 | -.19 | 10.82 | |
2011 | -5.26 | 23.61 | -9.68 | 1.58 | -6.77 | .39 | |
2010 | -6.66 | 3.41 | 13.88 | -9.09 | 12.17 | 11.85 | |
2009 | 9.37 | 8.51 | 8.91 | 6.99 | -7.26 | -7.26 | |
2008 | -4.31 | -10.98 | -20.46 | -20.91 | 11.02 | 9.95 | |
2007 | -2.9 | 1.7 | 5.99 | 4.47 | -4.38 | 3.55 | |
2006 | .16 | 5.68 | 9.28 | 3.56 | -4.98 | 13.83 | |
2005 | 2.51 | -3.62 | 1.61 | 2.94 | -.53 | 2.89 | |
2004 | 4.15 | .95 | 5.63 | -.18 | -1.23 | 8.88 | |
2003 | .43 | 12.64 | -2.92 | 10.46 | 3.01 | 22.91 | |
2002 | -3.74 | -21.45 | 24.71 | -16.23 | -3.04 | -23.56 | |
2001 | 1.8 | -7.62 | 2.74 | -10.47 | 1.73 | -10.29 | |
2000 | 11.7 | -7.26 | -10.3 | 10.95 | -12.28 | -13.63 | |
Average | 1.34 | .12 | 1.77 | -1.31 | -.92 | .97 | |
Mondays on average were the second best day to invest since the beginning of 2000. It was never the worst day for any particular year and it was the only day to do that.
Tuesdays produced the third best result with a .12% annual return on average.
Wednesdays, on average, were the best day out of the week to invest in SPY with a 1.77% annual return. That is almost twice as much as the total SPY annual return over the time period. It also was the highest for a particular year 6 out of a possible 14.
Thursdays turn out to be the worst day of the week to invest in SPY. On average, you would have gotten a -1.31% annual return if you would have only invested in SPY on Thursdays since 2000.
Fridays have the second worst return with a -.92% annual return on average. In 6 out of the possible 14 years it had the lowest return for that particular year.
The difference in returns is statistically significant, and worth keeping in mind when investing.
All Together Now
Not that we have two separate theories that we are confident in, let's combine the two into one trading strategy to see if we can outperform SPY while only investing in SPY during specific times. The trading model displayed below buys into SPY only if it is a Monday or Wednesday or the day of month is larger than 20. It sells whenever the two conditions above are not true.
The green line displays the return of our strategy while the blue line displays the return of SPY if you were to buy and hold since 2000 up until today. As you can see we actually heavily outperform SPY with our strategy. The total return of the strategy is 150% which is an annualized return of 6.9% This is pretty amazing due to the fact that we are only holding SPY about 45% of the total time.
Short Term Outlook
Since the beginning of year 2000 October, November, and December all rank in the top 6 months on average to be investing in SPY at numbers 6, 4, and 3 respectively. If you believe in the data we have presented above then you may want to increase long positions as we approach the end of October and keep that bullish outlook throughout the rest of the year. That is if you believe history repeats itself.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.