There is nothing special about seasonality, other than it tends to happen.
Last week, I received a question from a subscriber, asking my “why the months of August and September were so bad for stocks?”.
The answer is a little easier than you probably thought.
Sure, some market commentators will tell you that trading volume drops during these months and that allows for stocks to get more volatile.
Wrong! Weekly volume on the S&P 500, Nasdaq 100 and Russell 2000 indices has been on the rise since July.
Maybe it’s the lack of headlines or “events” since earnings season has died off?
No. It’s much simpler than that.
Seasonality is the result of the market’s “group think”. A sort of “self-fulfilling prophecy that investors just can’t seem to avoid, even though they know it’s coming.
Real investors and traders just accept that it’s coming and put together a plan.
That’s how you beat the market, turn seasonal weakness into your buying opportunity.
On average, the S&P 500 gains +0.1% a week over the last 20 years.
For those of you that wonder why I always quote “the last 20 years” on studies like this, it’s simple. Today’s “modern market” acts nothing like the stock markets of 1950, 1970 or even 1980.
The advances in availability of trading, trading data and investing tools has evolved the market into a completely different animal, which is why I focus studies like this on the last 20 years.
The market averages +0.1% gains per week.
Most of those gains are relatively random when you look at how they line up over those 20 years, but there are weeks of the year when something special happens.
Those average returns swing to one extreme or the other.
For example, the first week of the year.
The S&P 500 averages a performance that is ten times higher than average, making it one of the three best weeks of the year to be “in the market”.
How about this?
“Week 10” starts a string of the best nine weeks of the year to be in stocks. The average weekly gain during that run is 0.5%, five times better than that 0.1% average.
Then you have weeks like this week, “Week 39”.
Week 39 averages a return of -0.8% making it the second worst week of the year. It’s also followed by two more bad weeks as we head into the end of the Summer Slump of Seasonality.
There’s good news on the horizon through, I’ll get to that in a minute.
I normally talk about “monthly” seasonality. For the last two months we’ve been talking about the fact that the S&P 500 is most volatile and at its worst in terms of performance during the months of August and September.
Here’s the monthly seasonality chart. Note the
But today, we’re going to look at the same seasonality data broken down by week.
The chart looks like this…
See that first red bar? That’s Week Nine. This year, Week Nine happened in early March. The S&P 500 dropped more than 5% that week.
The second red bar… Week 26.
Stocks went up 2% during Week 29 this year, showing that the seasonality isn’t a lock, but the market loosened up a few weeks following as we got into July.
Now, we’re facing two weeks of performance for stocks that often marks the end of the summer seasonality period.
The Nasdaq 100 has been on technical thin once over the last few weeks.
Repeated tests of the index’s 50-day moving average have been met with tepid buying as investors keep a close eye on names like NVIDIA, Microsoft and other AI brethren that have seen their white-hot performance slow after last quarter’s earnings results.
For my money, I’m watching NVIDIA (NVDA) the closest.
NVIDIA remains the most popular stock in the market, period!
The market leader, which is still trading 135% higher for the year, hasn’t been able to muster up the strength to break its short-term bearish trend.
Shares are sitting right on the stock’s 20- and 50-day moving average. Both of those trendlines are in a bearish trend as they decline.
These trendlines combine with the $115 price level as a potential “trigger” for the rest of the market.
I’ve said it before and this won’t be the last time… if NVIDIA sneezes, the market catches a cold. A break below that $115 is a sneeze during this week.
Historically, the market gets to a seasonally strong streak of trading as we get into the month of October.
Week 43 kicks off an eight-week run that averages +0.4% per week for a total of 3.4% as we head into November.
You don’t trade this trend. Instead, you use the time to prepare for what’s coming. I’ll help you do that this week.
Two sectors are among the strongest and most consistent performers in the seasonally bullish period that’s going to kick off in October.
Technology and Retail stocks are among the most consistent performers in the fourth quarter each year.
We’ll go through those two sectors along with the standouts that you should be considering for your portfolio this week as the market avails opportunities to “buy the dip”.
