The stock market has very important seasonal tendencies that every investor must know. December and January are far and away the best months of the year for the stock market. Actually, a very bullish period of the year runs from November to early January.
September is easily the worst month of the year. Surprisingly, the next worst month of the year is February, as the stock market has seen many major tops occur in January. October, which many investors are deathly afraid of is in the middle of the pack as far as performance is concerned.
Don't miss these tendencies. These are based on over a half a century's worth of stock market history. Why they occur is really unimportant, but they do make some sense.
Since the stock market has a historical upward bias, at the end of the year many investors will have gains in their positions. If they can put off selling these profitable positions until the next year, they can put off the capital gains tax that they owe for a year. This reduction in selling during December could be the reason for the December/January bullishness.
The Pre-Thanksgiving Buy Signal
Here's an example of a market timing strategy that has worked for decades. It's very simple. You Buy the S&P 500 on the Monday before Thanksgiving and Sell the 3rd day of January.
Using the Rydex Nova mutual fund (beta = 1.5), I have back tested 54 years using this simple strategy and the results are as follows:
- Trades: 75% of the trades made money
- Maximum Drawdown: -13.9% vs the S&P 500 with -48%
- Total Gain: +13,285%
- Compounded Annual Return: +9.2%
- Tim Invested: 11.1% of the time
