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Stock market seasonal trends: When is the best and worst time to invest in stocks?

By Piero Cingari

15:38, 2 September 2022

a chart showing A stock market chart with the relevant months highlighted along the axis.
A stock market chart with the relevant months highlighted along the axis.

Blackberries are a summer fruit, while pears are harvested in autumn, and if you thought that the stock market couldn't be affected by seasonality, or recurring patterns in the returns, you were wrong.

Based on the historical performance of the past fifty years, we discovered that there are seasonal trends on the stock markets that occur during certain months of the year.

To analyze seasonality trends in the stock market we used the following metrics:

  • Average returns by month: This is the average of all historical returns in a month. It provides information regarding the performance of the index during a particular month.
  • Gain frequency by month: This statistics is obtained by dividing the number of positive returns in a month by the number of observations in that month. This provides an indication of the historical probability that a positive performance was observed during a particular month of the year.

How does the S&P 500 (US 500) index perform during the year? How do other major stock indices fare when the S&P 500 drops or rises? Why do seasonal trends exist in other equity indices like the Nasdaq 100 (US 100), the Dow Jones (USA 30) or the German DAX (DAX 30) ?

We answered these questions and discovered some fascinating findings.

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Major stock market indices: seasonality trends – Monthly average returns

Equity market indices average historical returns by month – Photo: Capital.com

Major stock market indices: seasonality trends – Monthly gain frequency

Equity market indices gain frequency by month – Photo: Capital.com

September is the worst month for the stock market

Starting off or with bad news, September is the worst month for the stock market. When you think of September, you immediately recall the collapse of Lehman Brothers on September 15, 2008, but this event did not have a significant impact on the seasonality trend observed over the past 50 years. Even after removing this event from the analysis, the S&P 500 and other major stock market indices posted a negative performance in September. 

September is the only month in the past 50 years in which the S&P 500 (US 500) index recorded a negative average return (-0.8%). 

In September, the S&P 500 (US 500) index gained only 45% of the time, the lowest gain frequency of the year. Other major US stock market indices, such as the Dow Jones (USA 30) and the Nasdaq 100 (US 100), fell by -0.9% and -0.5%, respectively, in September.

No major advanced country equity index demonstrates a positive historical average return in September. European stock indices – German DAX (DAX 30), Eurostoxx 50 (EU 50) and UK FTSE 1000 (UK 100) – as well as the Japanese Nikkei 225 (J225) index were also weak in June and August.

Among the main stock indices of major advanced countries, the German DAX (DAX 30) shows the worst average performance in September (-1.7%).

November, December and April are the best months for the stock market

"Sell in May and go away... but remember to return for Halloween" is an old saying that seems to be hold true when it comes to stock market seasonality.

While September is a typical risk-off month, equity markets tend to rally in November, December and April. The latter, in particular, shows the highest average returns for the major stock indices of advanced countries.

In these months of the year, the S&P 500 (US 500) index grew by an average of 1.4%, 1.3% and 1.6%, respectively. The percentage of times the S&P 500 (US 500) index has recorded positive returns is also very high, 68%, 74% and 71% of cases respectively.

The Nasdaq 100 (US 100) did even better than the S&P 500 in terms of average returns in November (2.2%), December (1.5%) and April (1.6%).

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Spread 2.2

US500

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Short position overnight fee 0.0040%
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Spread 0.8

The same goes for the Dow Jones (USA 30), which grew 1.4%, 1.5% and 2.1%, respectively, as well as the German DAX (DAX 30).

The strongest seasonality in the main advanced country stock indices is found in the UK FTSE 1000 (UK 100) in April (+2.3%).

Economic factors affect September’s seasonality in stock markets

The economic cycle's seasonality may explain why stock markets fall in September.

September is traditionally a slow month for retail sales in the United States, as consumers tend to cut back on their discretionary spending and increase the amount savings at the end of the summer.

When compared to the previous month, the ISM Services PMI, which is a leading survey among private sectors’ managers on the economic outlook, typically shows a weak performance in the month of September.

Economic cycle seasonality – Photo: Capital.com

S&P 500 outperforms in ODD years vs EVEN years, as political risks play a role

S&P 500 outperform in ODD years, as political risks weigh on EVEN years – Photo: Capital.com

Believe it or not, the stock market hates even-numbered years and loves odd ones.

Over the last 50 years, the S&P has returned on average only 3.9% in even years and 13.1% in odd years, against an overall yearly return of 8.4%.

What factors influence the outperformance of odd years over even years in the S&P 500 index?

It has to do with politics, specifically with the increased political uncertainty that occurs during election years in the United States, both for the presidency and for the midterm elections, which always take place in even years.

During election years in the United States there is a lack of clarity regarding the economic policies that will be prioritized as investors do not know which political party will hold majorities in Congress.

S&P 500 monthly average returns during ALL years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during ALL years since 1972 – Photo: Capital.com

S&P 500 monthly average returns during ODD years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during ODD years since 1972 – Photo: Capital.com

S&P 500 monthly average returns during EVEN years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during EVEN years since 1972 – Photo: Capital.com

S&P 500 monthly average returns during ALL years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during ALL years since 1972 – Photo: Capital.com

S&P 500 monthly average returns during ODD years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during ODD years since 1972 – Photo: Capital.com

S&P 500 monthly average returns during EVEN years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during EVEN years since 1972 – Photo: Capital.com

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S&P 500 hates mid-term election years

Mid-term election years, in particular, scare the stock market the most, due to the higher risk of a legislative gridlock, when one party controls Congress and the other the White House.

Historically, the S&P 500 has only returned 0.7% on average during years with mid-term elections, and seven out of twelve monthly returns have been negative on average.

S&P 500 monthly average returns during mid-term years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during mid-term years since 1972 – Photo: Capital.com

S&P 500 monthly average returns during presidential-election years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during presidential-election years since 1972 – Photo: Capital.com

S&P 500 monthly average returns during mid-term years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during mid-term years since 1972 – Photo: Capital.com

S&P 500 monthly average returns during presidential-election years since 1972 – Photo: Capital.com

S&P 500 monthly gain frequency during presidential-election years since 1972 – Photo: Capital.com

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Markets in this article

US500
US 500
5474.7 USD
46.5 +0.860%
US100
US Tech 100
19907.6 USD
244 +1.240%
EU50
EU Stocks 50
4908.1 USD
64 +1.320%
UK100
UK 100
8173.8 USD
-5.2 -0.060%
J225
Japan 225
38432.5 USD
-46 -0.120%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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