Best and worst months for the stock market – seasonal patterns – trading that fluctuates (2024)

Learn the seasonal patterns in the stock market, including which months perform best and worst, whether you buy before or after holidays, and other patterns.View the best and most valuable months for stocks over the past 10 and 20 years.

March is often a turning point for stocks, where they start to outperform after a slow January and February. But in 2024, January and February were anything but slow. The S&P 500 is up more than 7% this year heading into March. Historically, March is also a strong month. The S&P 500 has risen 70% of the time in March, with an average annual gain of 1.2% over the past two decades.

Seasonal patterns in the stock market are the directional trends of stock indices based on the time of year. Certain times of the year tend to be more bullish (up) for stocks, while other times of the year are more bearish (down). Seasonal patterns are similartrading chart patterns. Chart patterns are geometric shapes that form within price action and can be used to find favorable shapesreward according to risktrading opportunities. Both chart patterns and seasonal price patterns are useful tools that traders can use to improve their trading.

Seasonality is essentially a historical-based average of how the stock market performs throughout the year. Averages are a guideline, a tool, but do not accurately predict what will happenthis hereyear.That said, some investors and traders can use seasonal trends to build strategies or improve existing ones.

For example, if we know that September is generally a bad month for stocks, a trader who takes mainly long positions may choose to take this month off or exit his positions earlier than normal if they start to fall in September. A trader can buy stock index ETFs (such as SPY or IVV) during seasonally strong months as the ETFs start to rise. An investor can buy at certain times of the year and then sell out (if possible with a commission).Buy and holdInvestors may want to invest in seasonally weak months to take advantage of lower prices.

Seasonality can be used in many ways. Individual stocks, commodities andvaluta'salso often have seasonal trends.

So let's take a look at the seasonal patterns of the stock market.

Seasonal Patterns - Best and Worst Months for the Stock Market, Summary Table (20 Year Average)

Below is a full breakdown of the monthly average gains and the percentage of time the month went higher.

Do you prefer video? The following video reviews all the data on the best and worst months for the stock market based on three different indices.

Seasonal patterns in the stock market

Here's how the stock market has performed in each of the months over the last ten and twenty years.

The number at the top of the column is the percentage of time the stock index has risen. If it says 70, it means that the stock index rose 14 out of 20 years in that month (70%).

The number at the bottom of the column is the average percentage gain or loss in that month over a 10 or 20 year period.

To give you a better idea of ​​the best and worst months of the year, we look at three major stock indexes, the NYSE Composite, the S&P 500 and the Nasdaq 100.

The NYSE Composite consists of all stocks listed on the New York Stock Exchange, so it is a very diverse stock index. The S&P 500 includes only the largest companies in the United States, and the Nasdaq 100 includes large companies based primarily on technology.

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NYSE Composite Seasonal Patterns

Here's a look at the NYSE Composite's best and worst months over the past 20 years (2004-2023)

• Best months: April, July, October, November and December
• Worst months: January, February, June, August, September

Seasonal charts courtesy ofStockCharts.com.

The chart above looks at twenty years of data. If we look at just the past ten years (below), things change a bit.

NYSE Composite best and worst months of the past 10 years (2014-2023)

• Best months: April, June, July, October, November and December
• Worst months: January, February, March, August and September are weaker periods.

S&P 500 Seasonal Patterns

Here's how the S&P 500 did. The SPDR S&P 500 ETF (SPY) was used to generate seasonal data.

S&P 500 best and worst months of the past 20 years (2004-2023)

• Best months: March, April, May, July, October, November and December
• Worst months: January, June and September

Not much has changed in the last ten years, except that the market is quite strong from February to the end of August. September is weaker, and the end of the year is usually strong.

S&P 500 best and worst months of the past 10 years (2014-2023)

• Best months: March, April, May, June, July, August, October, November, December
• Worst months: January, September

To take another look and see how some years actually turned out, here are the annual charts for the S&P 500 (SPY) from 2014 to 2023. They are overlaid for each view.

Best performing stocks in Marchdiscusses specific stocks that have historically performed well around March.

Nasdaq 100 seasonal patterns

Here's how the Nasdaq 100 index fared. Invesco QQQ Trust (QQQ) was used to generate seasonal figures.

Nasdaq100best and worst monthsduring the past 20 years (2004-2023)

• Best months: January, March, April, May, July, August, October, November and December
• Worst months: February, June and September
  

Below you can see what it has looked like over the past 10 years. Other than December, there were not many changes that were weaker.

Most months are pretty good.

Nasdaq100best and worst monthsduring the past 10 years (2014-2023)

• Best months: January, March, April, May, June, July, August, October, November
• Worst months: February, September, December

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Seasonal considerations in the stock market

Think of the season as an instrument, not a crystal ball. It shows historical trends, not what will happen this year.

If the market tends to rise 80% of the time in April, that means it has risen in April 16 of the last twenty years, but it may not rise this year.

Average monthly return figures can also be distorted by an extremely large decline or increase in a given year. So an average return of 1% could be the result of a few big drops of 10% in some years and big increases of 10% in other years. The average is close to zero, but investors should be aware that the average does not tell the whole story.

Even in months that are likely to increase,stop lossand risk management must be used because if the price falls, we don't know how far it will fall.

Additional seasonal patterns in the stock market

There are some specific seasonal patterns in stocks that people have noticed and tested. These are usually short-term patterns.

Rally pattern for holiday

It has been noted that there is a positive expectation to buy shares one to two days before a long weekend/holiday and then sell one to two days after. Tradetietend to be lower leading up to long weekends, which may help explain rising prices (there is an upward trend in the stock market in the long term). Or maybe people are enjoying a long weekend and buying some stocks.

Short-term traders bought one or two days before the holiday and then sold one to two days after the holiday. Long-term traders can also take advantage and use a day or two before a holiday to pick up some stocks they've been seeing.

Actual testing shows that most vacations don't deliver big stock returns, but a few are more reliable and produce positive returns over time, according toQuantified strategies:

• 4th of July
• Thanksgiving
• Christmas (discussed more below)

At least according to history, these holidays are better than others at implementing the pre-holiday rally strategy.

Post-holiday rally pattern

Buying on the close of the day after the holiday and then selling on the next close has also shown a steadily rising equity curve (according to QuantifiedStrategies).

Santa Claus rally pattern

It is highly documented and generally quite profitable, with an average return of about 1.1% per trade on an index like the S&P 500. The strategy requires you to hold the stock for the last four to five days of the year and then sells two to three days into the new year. The exact number of days may vary depending on weekends and market closures. So use the closest number of days you can.

According to Quantified Strategies, buying on the third Friday in December (before the options expiration date) and selling at the end of the third trading day in January increased the average return to1,79% per handel.

Intradagsmønstre

There is alsorepeating patterns throughout the daythat plays out, which is useful for short-term traders and day traders.

Conclusion seasonal patterns in the stock market

Seasonal patterns can be useful, but they can also be pitfalls if we follow them blindly. Risk management should always be used to control losses, but it can also mean exiting certain trades that would otherwise have been profitable if the favorable seasonal metrics had occurred.

Most seasonal patterns are not statistically significant, meaning they are not based on sufficient data or other factors have not been taken into account. They are actually ideas withsomeproof.

Before putting your capital to work based on seasonal patterns, you may want to do more thorough research.

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Af Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice or advice to buy or sell anything. Trading is risky and can result in significant losses, even more than deposited, if you use leverage.

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