Learn the seasonal patterns of the stock market, including which months perform best and worst, whether to buy before or after holidays, and other patterns. See the best and worth months for stocks over the last 10 and 20 years.
Heading into December, it has historically been a decent month for stocks…but not all stocks. The NYSE Composite and S&P 500 have tended to push higher, but the Nasdaq 100 hasn’t fared as well.
Stock market seasonal patterns are the directional tendencies of stock indices based on the time of the year. Certain times of the year tend to be more bullish (go up) for stocks, while other times during the year are more bearish (go down). Seasonal patterns are similar to trading chart patterns. Chart patterns are geometric shapes that form within the price action and can be used to find favorable reward-to-risk trading opportunities. Both chart patterns and seasonal price patterns are helpful tools that traders can use to enhance their trading.
Seasonality is essentially an average, based on history, of how the stock market tends to perform throughout the year. Averages are a guide, a tool, but don’t forecast with accuracy what will happen this year. That said, some investors and traders may use seasonal tendencies to build strategies or enhance existing ones.
For example, if we know September tends to be a poor month for stocks, a trader who primarily takes long positions may opt to take this month off, or exit their positions quicker than usual if they start to decline during the month of September. A trader could buy stock index ETFs (such as SPY or IVV) during seasonally strong months if they start rising. An investor may buy in and then sell out at certain times of the year (if feasible to do so with commissions). Buy-and-hold investors may wish to invest during seasonally weak months to take advantage of lower prices.
Seasonality can be used in many ways. Individual stocks, commodities, and currencies also tend to have seasonal tendencies.
So let’s jump into the seasonal patterns of the stock market.
Seasonal Patterns – Best and Worst Months for the Stock Market, Summary Table (20-year averages)
|Up Months||Weak Months||Best 3 Months||Worst Months|
|NYSE Composite||March, April, May, July, October, November, December||January, February, June, August, September||April, July, November||January, June|
|S&P 500||February March, April, May, July, August, October, November, December||January, June, September||April, July, November||January|
|Nasdaq 100||January, March, April, May, July, August, October, November, December||February, June, September||April, July, October/November||June, September|
A full breakdown with monthly average gains and the percentage of time the month has moved higher is provided below.
Stock Market Seasonal Patterns
This is how the stock market has performed in each of the months over the last 10 and 20 years.
The number at the top of the column is the percentage of time the stock index has risen. If it says 70, that means the stock index went up in that month 14 years out of 20 (70%).
The number at the bottom of the column is the average percentage gain or loss in that month over the 10 or 20 years.
To give you a better idea of the best and worst months of the year, we will look at three major stock indices, the NYSE Composite, the S&P 500, and Nasdaq 100.
The NYSE Composite is all the stocks listed on the New York Stock Exchange so it’s a very diverse stock index. The S&P 500 includes only the largest companies in the US, and the Nasdaq 100 includes large companies that are primarily technology-based.
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NYSE Composite Seasonal Patterns
Here is a summary of the NYSE Composite’s best and worst months over the last 20 years (2003-2022)
- Best Months: April, July, October, November, and December
- Worst Months: January, February, June, August, September
Seasonal charts courtesy of StockCharts.com.
The above chart looks at 20 years of data. If we only look at the last 10 years (below), things change a little bit.
NYSE Composite best and worst months over the last 10 years (2013-2022)
- Best Months: April, May, July, October, November, and December
- Worst Months: January, February, June, August, and September remain weaker periods.
S&P 500 Seasonal Patterns
Here is how the S&P 500 index has done. The SPDR S&P 500 ETF (SPY) was used to generate the seasonality figures.
S&P 500 best and worst months over the last 20 years (2003-2022)
- Best Months: February March, April, May, July, August, October, November, and December
- Worst Months: January, June, and September
Over a 10-year period, not much changes except that the market is pretty much strong from February through to the end of August. September is weaker, and then the end of the year tends to be strong.
S&P 500 best and worst months over the last 10 years (2013-2022)
- Best Months: February, March, April, May, June, July, August, October, November, December
- Worst Months: January, September
For a different look, and to see how some actual years have played out, here are the yearly charts of the S&P 500 (SPY) from 2013 to 2022. They are overlaid on top of each other for each viewing.
Nasdaq 100 Seasonal Patterns
Here is how the Nasdaq 100 index has done. The Investco QQQ Trust (QQQ) was used to generate the seasonality figures.
Nasdaq 100 best and worst months over the last 20 years (2003-2022)
- Best Months: March, April, May, July, August, October, November, and December
- Worst Months: January, June, and September
This is the same as the S&P 500.
Below is what it looks like over the last 10 years. Not much changes.
Most months are pretty good.
Nasdaq 100 best and worst months over the last 10 years (2013-2022)
- Best Months: January, March, April, May, July, August, October, November, December
- Worst Months: February, June, September
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Stock Market Seasonality Considerations
Think of seasonality as a tool, not a crystal ball. It shows historical tendencies, not what will happen this year.
If the market tends to rise 80% of the time in April, that means it went up in April 16 years of out the last 20, but it may not go up this year.
The average monthly return numbers can also be skewed by an extremely large fall or rise in a particular year. So a 1% average return could be the result of a couple big drops of 10% in certain years and big rallies of 10% in others. The average is near zero, but investors should be aware that the average doesn’t tell the whole story.
Even during months that have a high probability of rising, stop losses and risk control should be used, because if the price drops, we don’t know how far it will drop.
The US stock market has an overall upward bias over the long-term.
The S&P 500 has produced 10.5% yearly returns over the last 100 years.
The Nasdaq 100 has produced returns of 13.2% per year over the last 20 years.
Therefore, investors may consider using the weak months as entry points if looking to take long-term positions.
Additional Stock Market Seasonal Patterns
There are a number of specific seasonal patterns in stocks that people have noticed and tested. These tend to be shorter-term patterns.
Pre-Holiday Rally Pattern
It’s been noted that there’s a positive expectancy for buying stocks one to two days before a long weekend/holidays and then selling one to two days after. Trading volume tends to be lower heading into long weekends which may help explain prices drifting up (there’s a long-term upward bias to the stock market). Or possibly people are feeling good about a long weekend and buy some stock.
Short-term traders would buy one or two days prior to the holiday, and then sell one to two days after the holiday. Longer-term traders can also take advantage and use the one or two days prior to a holiday to pick up some stocks they were eyeing.
Actual testing reveals that most holidays don’t produce a big pop in stocks, but a few are more reliable and tend to produce positive returns over time according to QuantifiedStrategies:
- July 4th
- Christmas (discussed more below)
At least according to history, these are better holidays than others for deploying the pre-holiday rally strategy.
Post-Holiday Rally Pattern
Buying on the close the day after the holiday and then selling on the next close has also shown a steadily rising equity curve (according to QuantifiedStrategies).
Santa Claus Rally Pattern
This one is highly documented and generally quite profitable, yielding an average of about 1.1% per trade in an index like the S&P 500. The strategy requires holding for the last 4 to 5 days of the year and then selling two to three days into the new year. The exact number of days can vary based on weekends and market closures. So utilize the closest number of days you can.
According to Quantified Strategies, buying on the third Friday of December (before options expiration) and selling on the close of the third trading day of January bumped the average return up to 1.79% per trade.
There are also intraday repeating patterns that play out, which are useful for short-term traders and day traders.
Stock Market Seasonal Patterns Conclusion
Seasons patterns can be useful, but they can also be traps if we blindly follow them. Risk management must always be used to control losses, yet that may also mean getting out of some trades that would have otherwise been profitable if the favorable seasonal statistics played out.
Most season patterns are not statistically significant, meaning they are not based on enough data or haven’t accounted for other factors. They are essentially ideas with some evidence.
Before putting your capital to work based on seasonal patterns you may wish to do more thorough research.
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By Cory Mitchell, CMT
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.