Additional Seasonal Observations

by Jay Pestrichelli on October 7th, 2013

I feel a little like a broken record talking about how the last quarter of the year is usually strong for the markets. After all I posted Some End of Year Optimism on August 30th and The Fed Remains Unchanged…so no what? On September 19th.

Both of those posts point out how the 4th quarter of the year is typically strong and even better when there is a positive September, like we just had. I was planning on letting it go at that, but this weekend in the Wall Street Journal and on MarketWatch.com, Mark Hulbert put out 2 articles about the Halloween Indicator. Here is the link to the MarketWatch.com post

Essentially Mark tells us that the stock market makes most of its gains between October 31st and May 1st. While the opposite is true and performs poorly between May 1st and Halloween. He also sites that if you followed the “Sell in May and go away” mantra this year, you would have missed on a rare rise in markets this summer.  However, he believes we’re poised for some nice entry opportunities as the market has pulled back 3% since its high on September 19th.
 
It’s nice to get confirmation of our observations in two major publications, albeit a month later than we pointed it out. However, we’ll remind our Buy and Hedge readers that the debt ceiling debate is nothing to ignore. As unlikely as it is that the US will default on its debt, we remember the last time the debt ceiling was coming to a head. Starting on August 1st 2011, (news overview here) the markets showed worry as they began a 14% decline in just ONE week. Yes 14% in a single week. It has been a while since we've had that kind of volatility. Back then everyone was confident that the debt ceiling issue would get resolved, as it eventually did, but it came at a price nonetheless.

Since that time, every government-related stock market issue (the Presidential Election, Fiscal Cliff, Syria, etc.) has been met with a nice rebound. We expect the same this time and for history to repeat itself with Q4 growth. However, we have yet to feel the full pain of the debt ceiling issue.  So buckle in; it’s about to get bumpy.  


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