While a number of events in the month ahead could cause share prices to jump around, the six months between November and the end of April are, historically, the best time of year to be invested.
According to data and research by Bloomberg, it appears that, internationally & for the US stock market, the winter and spring periods once the summer holidays have ended have historically outperformed the rest of the year. Historically, the end and beginning of the year are key times when the investment markets are resilient and optimistic.
In Bloomberg’s data, an average return of almost 7% in the winter months, versus around 2% during the summer, can be seen. While this will not necessarily be the case every year, the data is statistically significant and strong returns are seen over 60% of the time during this period.
This research is based on the US stock-market represented by the S&P 500, which is comprised of 500 of the largest US companies. A similar pattern can be seen in market indexes of other countries. It’s important to note that this effect is relevant to index funds and ETFs, not to picking out individual stocks.
In summary, it appears over a long time period, there is an average outperformance in the winter for stock market indexes (example: S&P 500) and an underperformance in the summer.
This behavior can likely be attributed to the fact that more money flows into the market over the winter months, when people at Wall Street financial institutions return from summer vacations and start applying new strategies. Then in the spring, investors want to maximize tax allowances by investing in tax wrappers like an Individual Saving Account (ISAs).
While this isn’t always the case, investing in solid profitable companies or into investments like funds and trusts, maximizes the chance of success over the longer term as is shown by historical data.
The same does not apply to bond and fixed interest investment, which actually show an opposite reaction to this seasonality. The summer months reflect some of the best performance for bonds while the winter months are usually weaker.
Based on the above, while the market does fluctuate and winter months do show a stronger performance on average, the market does historically trend upward. That’s why time in the market is more important than timing the market – so you don’t miss out on these key periods of growth, no matter when they occur.