Another Seasonal Trend Fails To Deliver

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by: Bespoke Investment Group

We pay close attention to historical trends in the market and believe that investors should be aware of them, and in certain cases incorporate them into their process, but we have also always contended that investing based solely on the calendar is not the wisest of investment strategies. This year has been a perfect example. Sell in May and go away? Nope. September swoon? Not quite. The latest seasonal trend not to work this year is the somewhat less well-known, sell Rosh Hashanah, buy Yom Kippur.

In recent history, this seasonal trend based on the holidays of the Jewish New Year and Day of Atonement has actually been pretty consistent. Going back to 2000, the S&P 500 has seen an average decline of 1.11% (median: -0.71%) during the ten-day period with positive returns less than 40% of the time (see table below). What’s more, being out of the market during this period also would have avoided the nearly 18% decline that took place during the Financial Crisis in 2008. While there are a number of theories as to why this trend has worked over time, the most likely probably has to do with the fact that the period always occurs somewhere between early September and early October which has historically been one of the worst times of the year for equities.

While it has worked relatively well in the past, in 2018, the sell Rosh Hashanah, buy Yom Kippur trade hasn’t worked out for anyone following it. Through early afternoon Wednesday (Yom Kippur ended Wednesday), the S&P 500 is up 1.3% since the start of Rosh Hashanah, which is its best showing during this period since 2013.

While the period between Rosh Hashanah and Yom Kippur has historically been weak for equities, the two weeks after Yom Kippur have been very positive. Since 2000, the S&P 500 has averaged a gain of 0.91% (median: 1.04%) with positive returns nearly three-quarters of the time. For the remainder of the year, the results are similarly as strong with an average gain of 4.76% (median: 5.75%).

With the S&P 500 bucking the typical trend over the last week and a half, does that mean we can expect the market to do the opposite going forward? It’s possible, but prior history doesn’t suggest it. In fact, in prior years where the S&P 500 traded up during this period, it saw even stronger returns going forward. In the seven years where the S&P 500 was up from Rosh Hashanah through Yom Kippur, it traded up an average of 2.35% (median: 1.83%) in the following two weeks with positive returns all seven times. For the remainder of the year, the S&P 500’s average gain was 6.64% (median: 7.50%) with gains in all but one period (2007).