Welcome To The Worst Six Months Of The Year?

August 18, 2014 12:57 PM

As I’m sure you’ve heard by now, historically the May to October period is one of the worst six month timeframes, while the November to April period is very strong.  Today I wanted to take a closer look at this theory.  Is it true?  Or is there more to the story if you dig a little bit?

Going back to 1950 on the SPX, you can see the average return during the November to April timeframe is significantly better than from May to October.  Meaning we are in the heart of the worst six months currently.  

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What about the other six month periods?  Have you ever wondered how things did from December to May?  I did, and below breaks down the other months.  Interestingly enough, the November to April period is the strongest and the May to October period is the worst.  Guess everyone was right about which periods to avoid and which to be long.  

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This is the second year of the Presidential Cycle.  Historically, year two isn’t that strong.  Well, this is true once again, as the average November to April in year two goes down to an average of just +3.34% versus the average November to April return of +7.15%.  But what about the May to October during year two?  That one actually has a negative return, so we’re right in the heart of a very weak period it looks like.  

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Now looking at all four years in the Presidential Cycle, you’ll find that year two is the weakest and the current six months is the only one to average a negative return!  Seasonality isn’t playing anyone any favors here and now.  

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The beauty of the current weak six month stretch is that it opens the door to some awesome gains.  Now take one more look above.  The November to April period in year three of the Presidential Cycle has never been lower since 1950 and averages a very impressive +16%!  In other words, we are just a few months away from one of the most bullish periods every four years.  We’ve just got to get there first.  

Lastly, here are all the six month periods broken down by Presidential Cycle years.  Check out the bolded area below.  August to January during year three of the Presidential Cycle (so right now) is actually rather strong - up +11.4% on average and up 75% of the time.  So maybe things aren’t so dour and seasonality is on our side?  

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In fact, each of the next five months all are parts of six month periods which are the strongest in the Presidential Cycle.  All average double digit returns, with some very high chances of being positive.  

So maybe we aren’t in the middle of such a weak time seasonally like so many claim.  Doing a little more research reveals the next six months are some of the most bullish out of the entire four year cycle.  Good luck out there.  

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