A Global Pattern
You are no doubt aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms.
Mark Twain’s famous saying about stock market speculation (the other one was “There are two times in a man’s life when he should not speculate – when he cannot afford it, and when he can”). From a seasonal perspective he was definitely right about September and October. [PT]
The saying is in fact justified based on statistics. I most recently discussed the subject in the April 24, 2019 issue of Seasonal Insights. In the eleven largest markets in the world, stocks on average posted a gain of 8.07% in the winter half-year, while the gain achieved in the summer half-year amounted to a mere 0.26%.
Global stock market returns during summer vs. winter periods – almost the entire return was generated in the winter months.
The division into two time periods of equal length is merely a matter of convention though. Greater precision is possible, as I will demonstrate below.
The Precise Seasonal Pattern of the MSCI World Index
The MSCI World Index is widely used as a proxy for global stock markets. However, one needs to be aware that US stocks have a weighting of more than 50% in the index. Thus it represents a disproportionately small share of the stock markets of other countries. The chart below shows its seasonal pattern.
This is not a standard price chart; instead it depicts the average pattern of the MSCI World Index that emerges in the course of a calendar year. The horizontal axis shows the time of the year, the vertical axis the average percentage moves of the index over the past 30 years. The seasonal trends of the index can be discerned at a glance.
MSCI World Index, seasonal pattern over the past 30 years. Global stock markets tend to exhibit seasonal weakness between the end of July and early October.
As can be seen, the MSCI World Index typically declines within the summer half-year from late July until early October. However, it tends to rise moderately until the end of July, and only begins to weaken thereafter.
This demonstrates the importance of precise seasonal pattern analysis. I have highlighted the seasonally weak period in the MSCI World Index in blue on the chart. It starts on July 31 and ends on October 10.
The MSCI World Index Declined in 16 Cases out of 30
But what were the returns generated by the index in individual years? The following bar chart shows the return of the MSCI World Index between July 31 and October 10 in every year since 1989. Green bars indicate years in which the index rose, red bars show years in which it declined.
MCSI World Index, percentage return between July 31 and October 10 in individual years since 1989. Large losses were recorded on several occasions, with the worst reaching 33.39 percentage points
The color red is clearly dominant in this illustration. While declines did not occur at a significantly greater frequency than rallies (16 vs. 14), the declines were far larger than the rallies.
In short: over the coming two and a half months, the probability that stock prices will rise is almost equal to the probability that they will fall. However, if a decline does happen, it is likely to be especially strong. In other words, a dangerous time period lies directly ahead.
Check out the Seasonal Patterns of Other Instruments as well
What are the seasonal patterns of individual country indexes? And are there perhaps individual stocks that enter a strong seasonal phase at this particular juncure? With the help of the exact daily charts of Seasonax, seasonal trends can be identified with precision. Moreover, detailed statistics can be accessed with a single mouse click. Simply navigate to www.app.seasonax.com, where numerous instruments can be examined free of charge.
PS: Pay attention to both strong and weak seasonal periods to improve your returns!
Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com , which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the now defunct gold and silver fix in London. His Stay-C commodities trading strategy won several awards in Europe; it was the best-performing quantitative commodities fund ever listed on a German exchange. You can find an introduction to the Seasonax app and in-depth information on what it can do here. Furthermore, here is a complementary page on the web-based Seasonax app, which costs less and offers slightly different functionality (note: subscriptions through Acting Man qualify for special discounts – for both the Bloomberg/Reuters and the web-based versions of the app. Details are available on request – simply send a note to email@example.com with the header Seasonax!).
Charts by: Seasonax
Image caption by PT