Market Seasonality – Seasons’ They are-a Changin’

One of our posts from May titled “Market Seasonality: Sell in May and go away?” was about market seasonality. Here we are, six months later at the beginning of November, entering what some consider a change of season for the US Stock Market. As we move into this historically strong six-month “season,” US Equities are now firmly in the number one spot on a relative strength basis and other equity indicators are improving as well.  The past six-month market season certainly lived up to its traditionally weak track record with the S&P 500 (“SPX”) down 0.29%, and the Dow Jones Industrial Average (“DJIA”) down 0.99%.

All-In on Equities?

When Texas Hold’em poker players feel they have a sure thing (or are on a huge bluff) they put all their money on one play and call “All-in”.  With the current market conditions, one could ask, “does it make sense to go all in on equities and hope the returns over the next six months are positive based on the historical pattern?”

The answer is no, because “hope” is not a reasonable investment strategy. However, that does not mean that it is a bad idea to increase equity exposure at this given point.  It means the decision to take action cannot be made solely based on the market seasonality theory.  We view market seasonality as a single influence in the decision making process, many other factors need to be considered as well.

We hope the market does better in the coming months than it did during the past six months. One could certainly make an argument that given the history of market seasonality, it is more likely to happen than not. We all hope this theory proves to be true over the next six months…but with that said…don’t go all-in because of it.