Seasonal factors do exist. In May of every year, investors often hear the proverb of “Sell in May, go away.” in the media. This article will talk about the seasonal factors that I have observed personally in the past 30 years of investing in US stocks.
Most of the time will rise
From the beginning of Christmas every year to January of the following year, U.S. stocks usually rise. The seasonal factors I summarized are as follows:
- Investors will start the new year, regroup and buy stocks aggressively.
- Beginning at the end of January each year, companies will release the fourth quarter of last year’s revenue report. For almost all listed companies, because Americans spend Christmas and year-end shopping seasons, their revenue in the fourth quarter of each year must be the highest each year. This season, coupled with fixed factors such as inflation and rising prices, will certainly push up the company’s stock price.
- Investors are willing to enter the market to buy stocks with an optimistic atmosphere.
After the fourth quarter of last year’s revenue report was released at the end of January, because the stock market is usually at a “new high in the past 12 months,” there will be a period of time for investors (such as institutional investors and retail investors to follow the results of the report, adjusting holdings accordingly) profit-taking, short-term selling will come out soon, but generally speaking, it will not last for a long time.
Most of the time will fall
From late-September to late-October each year, some times it may extend to mid-December, U.S. stocks usually fall significantly and sharply. The seasonal factors I summarize are as follows:
- Late September is just like the end of the third quarter, which is about to enter the last and only season of the year. Various investment reviews and plans will be released. Of course, many of them are temporary, hoping to reverse the rewards of the year through a large number of changes of hands.
- Americans can deduct tax for their losses in buying stocks. During this period of time in the United States, a variety of factors have been combined. During this period, they are used to reviewing their own one-year investment returns and will clear out the stocks that have lost money and accelerate the speed of the stock market.
- Investors have begun to sell poorly performing stocks, or share swap operations, in order to lay out their investment strategies for the new year. Most people will not change hands to buy immediately, and will first meet the year-end cash needs (don’t look at things from the eyes of the Chinese, the average person in the United States usually don’t save money, for them, they won’t have big money if they don’t sell stocks.), and then plan to buy again in January next year.
- The year-end shopping season starts, and some investors will sell stocks for cash, raise year-end purchases, spend Christmas and New Year holidays and various budgets.
If a careful investor carefully studies the history of the US stock market over the past 100 years, you will find many historical crashes that have been recorded in the history of the US stock market. “Most of them” started at this time:
- November 21, 1916-December 19, 1917, drop: 40%
- November 3, 1919-August 24, 1921, drop: 47%
- September 3, 1929-November 13, 1929, drop: 47%
- From November 29, 1968 to 18 months, the decline: 36%
- From October 19, 1987 to October 19, 1987, the Dow Jones Industrial Average set a record for the largest single-day decline in history of 22.6% on that day. By July 1989, the decline was 34%.
- October 2007-March 2009, decrease: 57%
Based on the reasons I have listed above, it cannot be said that there are no reasons with seasonal factors.
Light trading volume
Europeans and Americans have annual long vacation plans. Every summer vacation in July and August, because students do not have to attend classes, the whole family will choose to travel during this period. As a result, many Wall Street financial professionals (especially decision-makers) are not in the company (average investors also need to go out with their families), and they are unable to attend major investment decisions. These two seasonal factors have caused, in general, the transaction volume in July and August of each summer vacation to be significantly lower than in other periods.
Is Wall Street inaccurate on seasonal factors?
The Wall Street investment banks will issue reports from time to time to warn investors that they should take a profit, otherwise the stock market or individual stocks will fall back or fall sharply. Investors should understand the mentality of Wall Street finance industry. I once wrote a blog article “The advantages of retail investors?” it reminds investors that institutional investors (Wall Street is the representative of institutional investors) are limited by their job responsibilities and their jobs security, and must take short-term investments-the result is a waste of the biggest natural advantage that the stock market can make money: long-term investment.
This is also the fundamental reason why it is difficult for institutional investors and Wall Street to make money. That’s why they advocate take profits early, because they were educated and demanded as soon as they entered the industry.
In addition, have investors ever thought that if Wall Street investment banks don’t intimidate the investing public to take profits early, if everyone invests for a long time and clings to stocks, then they won’t be able to earn the spreads and handling fees. They can’t find the opportunity to take advantage of bargain hunting, which is beneficial to them.
In the Postscript chapter of my book “The Rules of Super Growth Stocks Investing”, I encourage investors to think more independently in everything, think farther, no need to agree with most people, and have the courage to think about the second level. If investors can have different insights from most people, then your chances of success in investment will increase substantially.
Investors often hear from a Wall Street investment bank, or a celebrity investor (there is also one in Taiwan) or an analyst predicting that the stock market will collapse every now and then. This is all nonsense, but want to use it to gain attention. To be honest, what they are talking about, even they themselves can’t figure it out.
Another reason for this phenomenon is the financial media, because they need content to fill the page, and there has never been a reporter to verify the accuracy or inaccuracy predicted by these unobtrusive people, and what the result is. I don’t need to check, I can tell you that the answer is no. And the investment master at the same time as Jesse Livermore, Bernard Baruch once said, “Don’t try to buy at the bottom and sell at the top. This can’t be done – except by liars.”
One of the most recent example was in 2019 because the bull market has risen for 10 years, investors are worried about the economic slowdown (yes, there was no specific bad news that will cause the market to fall apart except Trump, just because investors expect the economic cycle might peak).
In late September, it began to race to clear its holdings, triggering a significant correction in the U.S. stock market in about two month, falling by 20%. The 2020 crash was mainly triggered by COVID-19, but since the beginning of more than ten days before that, U.S. stocks had actually begun to fall after the fourth quarter of profit was released, and they fell all the way to March, nearly falling 40%. Because these two examples are very close, investors can study them to figure out.
Mark Twain is one of the most famous investment celebrities in the U.S. investing in U.S. stocks. He left many famous quotes related to the stock market. One of them is: “October is a particularly dangerous month for speculation in stocks. Other particularly dangerous months are July. Month, January, September, April, November, May, March, June, December, August and February.” This passage actually has a double meaning:
- The worst return on investing in the stock market of the year was in October, which is consistent with what I mentioned above. This is the truth.
- The rest of this sentence is a bit joking, because he has included all the months.
Seasonal factors do exist. However, there is no gurantee it will happen every year. In short, the stock market is not a science, don’t expect certainty or formulas; but there are still some methods or rules of thumb for investment success.
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