Issue 50 • OCTOBER 28, 2009

Stock Market 'Trick or Treat?'

History suggests that the best time of the year to be invested in common stocks is November to April.

This six-month period has yielded MOST of the total return for stock market investors when viewed over the past 50 years. Here’s the score, from 1950 through 2007:

If you were invested from May to October each year ... you earned an average annual gain of just 0.6%!

But if you ONLY invested during the BEST six months of each year, from November to April ... you earned 7.6% per year ... or TWELVE times more!¹

In fact, the months of November, December and January have been a particular TREAT for investors over the years ... with average monthly gains of +0.7%, +1.4%, and +1.5% respectively, going all the way back to 1929.²

In fact, it’s historically been the best three-month period of the entire year to be invested in stocks ... although the June, July and August period runs a close second.³

But watch out because these seasonal patterns don’t always hold true. Sometimes when midnight strikes on Halloween and the calendar turns to November — investors can get TRICKED during the months that follow!

Consider the spooky case of 1938!

After a nasty bear market decline during the second phase of the Great Depression, the S&P 500 bottomed in March 1938 ... then it rallied a spectacular +63% from the bottom.⁴ Starting to look eerily familiar, right?

But then stocks peaked in November 1938, only to suffer a steep correction of -16.4% up until January 1939. Remember, this correction occurred during the time frame that has historically been recognized as among the BEST months to own stocks.⁵

There are other precedents for the stock market tricking investors this time of year.

November 1980 for example, marked the PEAK of a robust eight-month market rally fueled by enthusiasm over “less bad” economic news ... which also sounds familiar today.

Soon, the economy rolled over into its second contraction within the infamous double-dip recession of the early 1980s. From the peak in November 1980, the S&P 500 plunged -25% before reaching its final bottom in mid-1982.

The bear market period in 1974-1975 can also be used as a guide, suggesting a potential market TOP during November ahead of a steep correction in January.

While the seasonal time frame doesn’t line up exactly, from October 1974 to July 1975, stocks rallied +53.5% (also following a brutal bear market decline). That rally lasted just over nine months before giving way to a -14% pull back in late 1975.

And we all have the experience of 2008’s frightening bear market plunge to relate to … Clearly warning that we can’t rule out a market decline haunting investors again during the final months of this year.

Granted, there is little evidence other than historical similarities in the price patterns to suggest that stocks could follow the same path this year as they did in 1938, 1975, 1980, and 2008 ... perhaps it’s simply coincidence.

Then again, stocks are more overbought than they have been at any time in recent memory, and the market appears overdue for a correction, which adds up to a big caution flag at this point.

The history lesson here: Beware the ghosts of past market declines. They have a spooky way of tricking you out of your treats when you least expect it!

Good investing ... and Happy Halloween!

Mike Burnick
Director of Research & Client Communications
Weiss Capital Management, Inc.

P.S.— If you’re concerned about the possibility of another sharp market decline, you may want to consider a fixed-income strategy offering potentially less volatility. Recently, we hosted a special Webinar, and published a NEW report: Four Ways to Seek Higher Current Income In a Low Yield Market. To get a complimentary copy of this report and view a replay of the briefing, GO HERE NOW!

¹ Business Week: Stocks: Sell or Stay in May?, 5/15/09
² Bespoke Investment Group: Average S&P 500 Monthly Performance, 12/3/07
³ Ibid.
⁴ Bank of America Merrill Lynch Market Analysis Comment 10/19/09
⁵ Ibid.