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Surviving Seasonality Thumbnail

Surviving Seasonality

Investing Insights

The stock market is similar to the weather; it's constantly changing, unpredictable, and it offers spurts of both euphoria and depression.  And much like the 4 seasons, the stock market has periods of the year when blue skies are more likely, and conversely, times for thunderstorms.  Attempting to predict either the weather or the stock market's next move is waste of energy.  Instead, enjoy the changing of the seasons, hope for sunshine, and keep an umbrella nearby!  

For whatever reason, the month of September tends to produce "stock market storms".  This year was no different, as the stock market fell by nearly 5% for the month.  (Dropping by 5% is normal; see last month's blog post Normal Market Behavior).  As the media reinvigorates the fear campaign, let's continue to use history as our guide.  Stocks remain on pace for a strong year, and headwinds will always be present.  I'll take a moment to remind you that we utilize an evidence-based approach to making investment decisions, meaning we will analyze recent data in comparison with historical market movements to construct portfolios.  Let's look at some recent seasonal history: 

Recent September Swoons:

September has had a rough time over the past few years.  I can't tell you why, there's no distinct reason for the 9th month of the year to suck for stocks!  Here's a look at the last 4 years:

Year
September Returns (S&P 500)
2020
-3.75%
2021
-4.68%
2022
-9.23%
2023
-4.7%


Q4 Strength:

During each of the past 3 years, Q4 has been extremely strong on the heels of September weakness.  Even though October can be temperamental, the last 3 months of the year tend to produce returns:

Year
September Returns (S&P 500)
Q4 Returns
2020
-3.75%
12.2%
2021
-4.68%
11.07%
2022
-9.23%
7.59%
2023
-4.7%
???

Source: www.kwanti.com 

Zoom Out...

The chart below shows the last 20 years of "stock market seasonality".  Generally speaking, stocks have been slow out of the gates and punctuated with year-end strength.  Of course, we can't predict how the rest of this year will play out.  However, recent history has been very profitable for stock investors during the 4th quarter.       

So what do we do with this information?  Do we short the market every September?  Should you move your savings account dollars into stocks during October every year?  Of course not!  Consider this another reminder that while the market doesn't always make sense, you have to continue to own it to grow your dollars.  While seasonality will give us some clues on what may come next, it's certainly not a trading strategy.    

Thanks for reading!  Tune out the noise, trust the process, and always be compounding. 


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