What is the seasonal cycle of the stock market?
“Sell in May and go away” is a well-known seasonal pattern in the financial markets that suggests that investors should sell their stocks in May and reinvest in November, as the markets tend to underperform during the summer months (May to October) and outperform during the winter months (November to April).
The four stages of a stock market cycle include accumulation, markup, distribution, and markdown.
Key Points. Market seasonality refers to consistent patterns that tend to take place within the calendar year and other time-based cycles. The factors affecting seasonality in the financial markets vary considerably, depending on the nature of the product or process.
According to this theory, U.S. stock markets perform weakest in the first year of a term, then recover, peaking in the third year, before falling in the fourth and final year, after which point the cycle begins again with the next presidential election.
Stock seasonality refers to stock price trends that occur within distinguishable timeframes. Traders use seasonality to identify historical patterns in price fluctuations and then use that information as guidance for trading.
First Quarter 2024
Many major economies, including the U.S., remained in the late-cycle expansion phase. Global crosswinds included evidence of solid service activity but restrictive monetary policies in many developed economies.
Like all cycles in the natural world, market cycles consist of periods of growth and decline. The tricky part about cycles is recognising when one phase is primed to end and another to begin, especially because these cycles can last anywhere from a few months to years.
“Sell in May and go away” is a well-known seasonal pattern in the financial markets that suggests that investors should sell their stocks in May and reinvest in November, as the markets tend to underperform during the summer months (May to October) and outperform during the winter months (November to April).
- Best Months: April, June, July, October, November, and December.
- Worst Months: January, February, March, August, and September are weaker periods.
Despite the above, markets are more bullish in May, more bearish in August. The best 3 consecutive months for US equities are October through December. Stocks are seasonally strong between October to April. The single strongest month for stocks is April.
How long is a stock cycle?
Market Cycle Timing
A cycle can last anywhere from a few weeks to a number of years, depending on the market in question and the time horizon at which you look. A day trader using five-minute bars may see four or more complete cycles per day while, for a real estate investor, a cycle may last 18 to 20 years.
Cyclical stocks are known for following the cycles of an economy through expansion, peak, recession, and recovery. Most cyclical stocks involve companies that sell consumer discretionary items that consumers buy more during a booming economy but they spend less on them during a recession.
Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.
Mondays and Fridays tend to be good days to trade stocks, while the middle of the week is less volatile. Historically, April, October, and November have been the best months to buy stocks, while September has shown the worst performance.
Seasonality in the stock market refers to the recurring trends and patterns that are observed during specific periods within the year. These patterns are identified based on historical data, and while they don't guarantee future performance, they do provide insights into potential market movements.
A recession is unlikely in 2024, but the risk of inflation still looms. Consumers who indulged in a spending fling during the second half of the summer fueled economic growth for the North Carolina and U.S. economies, and spending shows signs of continuing.
There's an 85% chance the US economy will enter a recession in 2024, the economist David Rosenberg says. He highlighted a relatively new economic model that has proven to be more timely than the yield-curve indicator.
That said, the risk of a recession has been elevated since the US Federal Reserve began its tightening cycle in March 2022, Fed Chair Jerome Powell told reporters in December. However, he said, “there's little basis for thinking that the economy is in a recession now.”
If you had invested in Netflix ten years ago, you're probably feeling pretty good about your investment today. According to our calculations, a $1000 investment made in February 2014 would be worth $9,138.15, or a gain of 813.81%, as of February 12, 2024, and this return excludes dividends but includes price increases.
According to Standard and Poor's, the average annualized return of the S&P index, which later became the S&P 500, from 1926 to 2020 was 10%. 1 At 10%, you could double your initial investment every seven years (72 divided by 10).
How do you determine stock market cycles?
Market cycles are usually marked by fluctuating prices as buyers and sellers come to an agreement over price and valuation of various assets. As cycles unfold and investor enthusiasm ebbs and flows, asset valuations can move from "fair," to elevated or overvalued, to undervalued or cheap, and all points in between.
The cyclical nature of new bond issues generates cause and effect each year. Like equity trading volumes, bond issuances lull in the summertime, and then spike in September. The rush of new issuances pulls money into the bond markets, driving investors to sell equity positions and reducing their liquidity.
The stock market is most active between the hours of 9:30 AM EST to 10:30 AM EST. The 2nd most active time is called Power Hour, which is between 3:00 PM EST to 4 PM EST. Traders take lunch between 11:30 to 2:30 pm, and that's the time trading algo's take over.
The January Effect is a tendency for increases in stock prices during the beginning of the year, particularly in the month of January. The cause behind the January Effect is attributed to tax-loss harvesting, consumer sentiment, year-end bonuses, raising year-end report performances, and more.
This rule suggests that significant trend reversals often occur before 11 am Eastern Standard Time (EST) during the regular trading session. In this comprehensive guide, we will demystify the 11am rule and explore its implications for traders.
