Stock Market Seasonality Points To A Good December
The first trading day of December was off to a running start, with global stock markets gaining strongly yesterday on positive developments in Europe and upbeat economic data. As a matter of fact, American bourses experienced a so-called 90% up-day. (A 90% up-day is defined as a day when upside volume equals 90% or more of the total upside plus downside volume and points gained equal 90% or more of the total points gained plus points lost.) Market breadth was excellent, with many indices bouncing off their key moving averages. Time will tell whether indices have seen their reaction lows (with good follow-through in Asia and Europe as I write).
In the meantime, focusing on the S&P 500 Index, I have done a short analysis of the historical pattern of monthly returns for this index over various measurement periods back to 1871. The results are summarized in the graph below.
Source: Plexus Asset Management (based on data from I-Net Bridge).
It is shown that December has historically been a good month, especially when considering the last 50 years. When looking at the periods since 1960, December is vying with April for the month with the largest percentage positive readings.
| S&P 500 Index: Percentage Positive Readings | |||
| Feb 1871 to Oct 2010 |
Sep 1960 to Oct 2010 |
Sep 1980 to Oct 2010 |
|
| Jan | 64.75% | 62.00% | 58.06% |
| Feb | 52.14% | 54.00% | 54.84% |
| Mar | 55.00% | 60.00% | 58.06% |
| Apr | 59.29% | 72.00% | 70.97% |
| May | 50.71% | 56.00% | 61.29% |
| Jun | 54.29% | 58.00% | 67.74% |
| Jul | 57.86% | 54.00% | 58.06% |
| Aug | 60.71% | 58.00% | 64.52% |
| Sep | 58.57% | 58.82% | 61.29% |
| Oct | 49.29% | 54.90% | 54.84% |
| Nov | 56.12% | 62.00% | 63.33% |
| Dec | 54.68% | 70.00% | 73.33% |
Where does this leave us? When evaluating valuation levels and the technical outlook for stock markets, one should also take cognizance of seasonality but understand that it is not a stand-alone indicator and it is anybody's guess whether a specific year will conform to the historical pattern. (After all, November was also supposed to be a good month ...)
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Author: Prieur du Plessis
Dr Prieur du Plessis
investmentpostcards.com
With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.
He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).
Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.
Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.
Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.
In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).
Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.
Copyright © 2008-2012 Dr Prieur du Plessis
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