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The
Seasonality Factor
Brian
Trumbore
President/Editor, StocksandNews.com
Following is our annual (sometimes
semi-annual) look at seasonality?or in this case "sell
in May and go away."
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Back
in 1986, Yale Hirsch, now Editor at Large of "Stock
Trader's Almanac," discovered one of the most powerful
principles of investing, that being if you invest
only during the November 1 - April 30 time period
you will have far more success than investing in the
corresponding period, May 1 - October 31. And it's
not even close.
For
example:
If
you invested $10,000 in the Dow Jones Industrial Average
on May 1, 1950 and took it out each October 31, repeating
this exercise through 2005, your portfolio after 54
years would have actually shrunk $272 to $9,728. [Not
including dividends.]
But,
if you took $10,000 and invested it only during November
1 - April 30, your portfolio would have grown $544,323.
*For
the S&P 500 the results are $389,426 and $8,209.
The
key is the power of compounding, as well as the fact
that the four top months since 1950 for both the Dow
and the S&P are November, December, January, and April,
all within the 11/1- 4/30 timeframe. [For the S&P
it's five months, including March.]
Monthly
returns for the Dow Jones?January 1950 - June 2006
November?..1.7%
avg. percentage change
December?..1.7%
January??..1.3%
February??0.2%
March???0.9%
April???..1.8%
May????0.1%
June??......-0.1%
July????1.1%
August??..-0.1%
September....-1.0%
October?......0.5%
Returns
for the S&P 500?January 1950 - June 2006
November.....1.8%
December?.1.7%
January??.1.4%
February?..-0.0% [-0.02]
March??...1.0%
April???.1.3%
May???..0.2%
June???..0.2%
July???...0.9%
August??.-0.0% [-0.001]
September...-0.7%
October?.....0.9%
Nasdaq?January
1971 - June 2006
November?..2.2%
December?...2.0%
January??...3.7%
February??.0.6%
March???.0.3%
April???...1.0%
May????1.0%
June????1.2%
July???...-0.3%
August???0.2%
September?.-1.0%
October??..0.5%
Source:
"Stock Trader's Almanac 2007"
*Some
data is 2005, some as of mid-year 2006, due to publishing
deadlines.
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Following
are levels for the S&P 500 at the seasonal turning
points related to the above. I have included the total
return for the S&P 500 for the full year to remind
you of the overall environment.
4/30/97..?.801
[S&P 500]
10/31/97?.914 [S&P +33.4% for all of 1997]
4/30/98?..1111
10/30/98?1098 [S&P +28.6% for 1998]
4/30/99?..1335
10/29/99?1366 [S&P +21.0% for 1999]
4/28/00?..1452
10/31/00?1429 [S&P -9.1% for 2000]
4/30/01?..1249
10/31/01?1059 [S&P -11.9% for 2001]
4/30/02?..1076
10/31/02?.885 [S&P -22.1% for 2002]
4/30/03?...916
10/31/03?1050 [S&P +28.7% for 2003]
4/30/04?..1107
10/29/04?1130 [S&P +10.9% for 2004]
4/29/05?..1156
10/31/05?1207 [S&P +4.9% for 2005]
4/28/06?..1310
10/31/06?1377 [S&P +15.8% for 2006]
4/30/07?..1482
So
what did we learn from this little exercise? Well,
take a look at 1998, a great year for the market.
But the seasonally weak period, 5/1-10/31, was just
that as the S&P actually declined during that time
in the middle of a +28% year.
Or
look at 11/1/01-4/30/02. The S&P actually rose, in
keeping with history, even though 2001 and 2002 were
dreadful years for the index.
But
now you have to determine if in the midst of a sizable
current rally will the market tread water, or decline,
from 5/1- 10/31 this time around? I'll save my own
thoughts for "Week in Review."
Wall
Street History will return next week?another look
at ethanol.
Brian
Trumbore
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