Wednesday, November 3, 2010

Seasonal Tendencies - Historical Backdrop Favorable...


Historically, the best 6-month period to invest in stocks is from November through the end of April.

According to Stock Trader’s Almanac, between November and April, the Dow Jones Industrials have returned +7.4% on average during the 6-month period since 1950.

By contrast, from May through October period the Dow Industrials have seen average gains of just
+0.4%.

Therefore, remarkably enough, 94.8% of all stock market gains since 1950 have come during the November through April period.

Historically, we are in a very favorable seasonal period for stocks for three reasons:
FirstNovember 1st is here and the best 6-month period of the year is about to begin. 

Second, we're in the sweet spot of the Presidential Cycle, a period in which stocks have enjoyed above-average returns with below-average risk.


Third, stocks are also entering the most favorable 3-month historical span—the period from November 1 through January 31

Over the past 60 years the S&P has gained roughly +5.0% during this 3-month period—a +21.5% annual rate.

While it is truly remarkably how consistent these 3-month and 6-month tendencies have been over the past 60 years, remember that these are long-term seasonal tendencies, not certainties for any given year. 

Seasonal tendencies are strongest when the economic fundamentals are healthy, much as they are right now. At present stocks don’t have to contend with exorbitant valuations, runaway inflation or a hostile Fed.

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