Summer is here and many investors turn their thoughts away from investing money and toward investing time into rest and relaxation. After all, why make a killing in the stock market if you can’t enjoy the fruits of your labor from time to time? There’s an old stock market adage, “Sell in May and then go away”. But should this concern anyone other than Wall Streeters that move to the Hamptons for the summer?
To answer this question, it may be worthwhile to take a look at seasonality.
Seasonality studies are used to gauge the typical behavior of market indexes and sectors over time to try and gain an edge with investment decisions. For example, the Stock Trader’s Almanac studied the monthly performance of the S&P; 500 and came up with interesting results. Over the past 15 years, June, July, August, and September have been the worst-performing months of the year while October, November, and December have been the best. In fact, September has shown a negative average return over the past 55 years while much of the profit in the S&P; 500 has been made in November, December, and January. It does appear that the old adage is correct. Keep in mind that every year is unique and these statistics may or may not work. But it’s important for investors to be aware in order to increase the likelihood of their success.
How can investors use this information to their advantage? By simply being aware of the seasonal factors of the markets and factoring the information into their investment decisions, they can increase or decrease portfolio risk exposure. This is, after all, a worthwhile venture. When it comes to investing, the performance of the markets, in general, can have a great impact on individual security performance.
Remember, strict adherence to your stop-loss discipline is required during the “not so gracious” times of the year. Also, the summer months often present short-term trading opportunities to produce gains. And finally, if it is a really bad market, the money market is an asset class that can be used until the storm clouds leave the scene.
It’s been written that everything has its season and the stock market is no different, so before you settle into your hammock and begin to sip on your ice-cold lemonade, make sure you have your risk management controls in place – only then can you truly relax.