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Speaker 1: Seasonality is the phenomena where during certain times of the

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Speaker 1: year markets behave almost predictably. It's rooted in the idea

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Speaker 1: that investors and businesses and economic cycles have regular patterns.

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Speaker 2: These patterns aren't quite.

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Speaker 1: As regular as the phases of the moon. They don't

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Speaker 1: always work, but combine with other factors, they can take

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Speaker 1: on a life.

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Speaker 2: Of their own.

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Speaker 1: Season I'm Barry Redults and on today's edition of At

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Speaker 1: the Money, we're going to discuss what you need to

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Speaker 1: know about market seasonality to help us unpack all of

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Speaker 1: this and what it means for your portfolio. Let's bring

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Speaker 1: in Jeff hirsch Edler, in chief of the Stock Trader's Almanac,

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Speaker 1: who's been studying seasonality just about his whole life.

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Speaker 2: Jeff, welcome, Hey, Barry, great to be with you.

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Speaker 1: So talk a little bit about this. I mentioned certain

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Speaker 1: things happen every year. People raise money to pay taxes,

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Speaker 1: They pay taxes certain times of year, they make regular contributions.

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Speaker 1: What does the data you study say about seasonality?

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Speaker 3: It says that people are creatures of habit and it's

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Speaker 3: a behavioral for nance at its core, where people are

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Speaker 3: doing the same things over and over on a regular

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Speaker 3: basis you mentioned in the intro the four to one

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Speaker 3: K contributions.

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Speaker 2: One of the.

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Speaker 3: Things that I learned early on when I started working

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Speaker 3: for my father was about that mid month spike. So

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Speaker 3: he had promoted a pattern for years, the best five

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Speaker 3: days of the year, the monthly five day bulge, which

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Speaker 3: was the last trading day of the month, in the

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Speaker 3: first four of the new month, which is when people

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Speaker 3: pay their bills and make all their transactions on a

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Speaker 3: monthly basis, and then and I used to do those

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Speaker 3: numbers by hand, using the Barons market lab pages and

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Speaker 3: you know, underlining stuff and using an anti machine and

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Speaker 3: all that by hand work, which was educational. But there

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Speaker 3: we are looking at the pattern. We see there's a

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Speaker 3: spike midmonth, and we're looking at each other, we're talking

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Speaker 3: about it, and we realized that that was this new

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Speaker 3: pattern of people with the payroll deductions going into the market,

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Speaker 3: and fund managers have to be long so there is

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Speaker 3: this spike where cash is coming into the market during

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Speaker 3: the middle of the month, and you have that sort

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Speaker 3: of super eight days of the month now where you

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Speaker 3: have the middle three and the last two and first

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Speaker 3: three that become that seasonal pattern.

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Speaker 1: So my partner Josh Brown calls out the relentless bid.

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Speaker 1: Your dad, Yalehurst, founded stock Trader's Almanac. Gee, is it

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Speaker 1: sixty years ago?

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Speaker 2: How long ago? It was nineteen sixty six, the year

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Speaker 2: of my birth.

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Speaker 1: Wow, that's I was amazing.

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Speaker 2: Born bredwen raised on all these patterns.

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Speaker 1: So one of the things that he has discussed and

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Speaker 1: you've written about continuously is, Hey, it's not just the calendar.

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Speaker 1: You have to look at things like technicals, fundamentals, sentiment,

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Speaker 1: fun flows, monetary et cetera. How do you sort of

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Speaker 1: take all these different factors and combine them with these.

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Speaker 3: Well, I mean, right now in twenty twenty three, seasonality,

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Speaker 3: the four year cycle, the president's cycle are firing on

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Speaker 3: all pistons. It's it's almost too easy. It's not always

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Speaker 3: going to be that way. But we are always combining fundamentals, macroeconomics,

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Speaker 3: moninary policy, and technicals with sentiment. And you're looking at

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Speaker 3: it and it depends upon, like any fund manager or

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Speaker 3: any trader, which factors are leading and driving the market

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Speaker 3: at any given time. And we're always looking for things that

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Speaker 3: are you know, outliers and things that people aren't thinking about.

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Speaker 3: Contrary thinking is part of it. But at our core,

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Speaker 3: it's always about cycles. People are creatures of habit, you know,

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Speaker 3: they do things on a regular basis every day. I mean,

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Speaker 3: people get up the same time, they have lunch, the

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Speaker 3: same time, they go to bed, the same time. The

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Speaker 3: market closes the same time it opens at the same time.

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Speaker 3: And you see these patterns continually persist. So that's sort

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Speaker 3: of our bias. But we look at you know, technical setups,

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Speaker 3: and one of the key things is you know, if

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Speaker 3: the market or the stock or the sector is tracking

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Speaker 3: that pattern closely, then you know, gains we get gains.

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Speaker 2: Or losses we get losses.

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Speaker 3: And if it's if it's diverting, that's when we might

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Speaker 3: not take advantage of a seasonal pattern because it hasn't

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Speaker 3: come in setting up correctly or tracking the pattern closely.

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Speaker 1: So we're recording this a few weeks before Christmas. Let's

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Speaker 1: talk about some of my favorite seasonal patterns that you

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Speaker 1: write about in Stock Trader's Almanac. Santa Claus Rally, what's

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Speaker 1: happening with that?

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Speaker 2: Everybody gets it wrong? Year in year out.

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Speaker 3: Yale, my father created this devised this indicator back in

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Speaker 3: nineteen seventy two, came out in the seventy three Almanac.

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Speaker 3: It is this tendency for the S and P five

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Speaker 3: hundred gain one point three one and a half percent,

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Speaker 3: not a huge number over the last five trading days

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Speaker 3: of the year, in the first two of the new year.

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Speaker 3: It's not the rally, the year end rally, the fourth

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Speaker 3: quarter rally from Halloween to January that everyone likes to use.

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Speaker 2: That for the best few months of the year.

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Speaker 3: It's not the best few months of the year. It

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Speaker 3: is this indicator. And as Yale, everyone forgets who created

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Speaker 3: the You know he a songwriter, Barry, He could coin

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Speaker 3: a phrase my father. The line is if Santa Claus

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Speaker 3: should failed to call bears may come to broader wall.

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Speaker 3: And what that means is that during that last week

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Speaker 3: of the year, when you know you might be away,

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Speaker 3: I might be doing some family things, and the pros

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Speaker 3: are on this, you know, on their desk, buying up

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Speaker 3: bargain stocks that were sold for tax laws selling. If

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Speaker 3: they're not doing that and the market doesn't valley during

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Speaker 3: that time, it's an indication that things are amiss.

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Speaker 1: So let's talk about the January effect. What does that mean?

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Speaker 3: Well, the January fact not to be confused with the

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Speaker 3: January barometer. The January effects is a tendency for small

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Speaker 3: caps to perform large caps in January, and as we

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Speaker 3: show in the Almanac, most of that January effect is

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Speaker 3: really the December effect.

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Speaker 1: Now it takes they dump those stocks in December and

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Speaker 1: now they're buying them back.

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Speaker 3: And right as we're speaking here, we're coming into that

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Speaker 3: mid December period where small caps start to take off

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Speaker 3: versus the large caps. We've seen the Russell two thousand

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Speaker 3: already begin to perk up, as it does around the

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Speaker 3: end of October. But the January barometer, which is the

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Speaker 3: other season indicator, is as January goes, so goes the year.

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Speaker 3: Another Yale invention at the same time in seventy two,

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Speaker 3: and you know, we've seen January take take it on

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Speaker 3: the chin a bit in recent years.

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Speaker 1: I saw a really interesting analysis of the January barometer

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Speaker 1: that said it's not limited to January. It's essentially a

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Speaker 1: momentum measure. Any strong month usually leads to another strong month.

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Speaker 2: There is the gains beginning gains.

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Speaker 3: We've compared all the monthly barometers, a very single month

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Speaker 3: of January the best, not just like it, but you know,

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Speaker 3: we've looked at it from the subsequent eleven months, the

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Speaker 3: subsequent twelve months, and the whole year.

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Speaker 2: And the thing that happens in January is that it's

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Speaker 2: the beginning of the year. Sets the tone.

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Speaker 3: It sets the tone you've got. And the reason why

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Speaker 3: the January barometer works is that is the nineteen thirty

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Speaker 3: three lame Duck Amendment to Congress. When they passed this,

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Speaker 3: newly elected senators and congress people were would take office

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Speaker 3: thirteen months later after they were elected, hence lame ducks,

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Speaker 3: and then and presidents were also inaugurated in March. There

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Speaker 3: was a whole period where you know, now it's January.

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Speaker 3: Winter was tough back in you know, the colonial times

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Speaker 3: to get to DC. So it moved inauguration of January

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Speaker 3: twenty If new Congress is convening to the first week

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Speaker 3: of January, and everybody, including you know, President company here

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Speaker 3: makes forecast, outlooks, sets, agendas, and precedents. You have States

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Speaker 3: of the Union, State of the Union, addresses, and a

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Speaker 3: lot of forecasts.

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Speaker 1: So it tends to be an optimistic timing year.

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Speaker 3: Tends to be optimistic. But also it's the time where

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Speaker 3: people are looking to the future.

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Speaker 1: So you mentioned Congress and presidents. Let's talk about the

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Speaker 1: presidential election cycle. I know you've been writing about this

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Speaker 1: for as long as I know you. We're in the

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Speaker 1: third year of a president's term. That is your favorite year.

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Speaker 3: It is the most bullish year. But I want to

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Speaker 3: I want to just finish one thing on January if

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Speaker 3: I can. There's a new, a new rinkle we've added

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Speaker 3: to it since January has has had some trouble recently

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Speaker 3: with a lot of profit taking. We've taken the old

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Speaker 3: first five days of the year, which the early warning

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Speaker 3: sess but it's also on the almanac, plus the Santa

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Speaker 3: Claus rally plus the full month January barometer created something

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Speaker 3: called the January Indicator trifecta. Since nineteen fifty, when the

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Speaker 3: three are up the Santa Claus rally, first five days

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Speaker 3: in a full month, the S and P has been

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Speaker 3: up ninety point three percent at the time, twenty eight

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Speaker 3: to thirty one years for an average came to seventeen

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Speaker 3: and a half percent.

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Speaker 2: That's pretty big, pretty good numbers.

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Speaker 1: How did the numbers look last year after we mand

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Speaker 1: those lows in October of twenty two?

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Speaker 3: Did you have the track we get the Triffact in

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Speaker 3: twenty three. Guess what twenty two? No sh effecta in

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Speaker 3: a midterm year, which segues back to your question about

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Speaker 3: the four year cycle, which you know you talked about

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Speaker 3: things happening on a regular basis. There's only one country

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Speaker 3: in the world that elects its leader on the same

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Speaker 3: day every four years. That's the United States. Everyone's got

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Speaker 3: these parliamentary votes.

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Speaker 1: Called for an election. Yeah, it's a week later and

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Speaker 1: they're done so, which, by the way, in America, that

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Speaker 1: doesn't sound too bad.

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Speaker 2: Get it over in a week.

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Speaker 3: Well, we can get into politics in theology. But the

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Speaker 3: cycle here is, you know, the pre election year is

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Speaker 3: the best year of the four year cycle, up about

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Speaker 3: sixteen in.

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Speaker 2: The S and P. This is nineteen fifty.

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Speaker 3: We see the mid term lows that move from the

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Speaker 3: mid term low like we had last year really well, yeah,

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Speaker 3: I mean average gains about forty eight percent for the

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Speaker 3: Dow from the mid term low to the pre election

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Speaker 3: year high, and it's about sixty eight percent for Nasdaq.

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Speaker 3: And what I've seen and what I show when I

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Speaker 3: when I when I present to people is that amazingly,

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Speaker 3: you know, there's a good cluster of lows in the

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Speaker 3: midterm Octobers. We know that October is a bear killer

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Speaker 3: and another one of Yale's phrases. But a lot of

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Speaker 3: the highs, the yearly highs, occur in December and in

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Speaker 3: good chuckle them on the last trading day of the

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Speaker 3: pre election year.

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Speaker 1: Now, how much of that is just window dressing and

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Speaker 1: how much of that is just people have cash that

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Speaker 1: they have to allocate in the calendar year and they're

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Speaker 1: just putting it to work.

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Speaker 3: I think it's a lot of both of those. Yeah,

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Speaker 3: I mean window dressing happens every year. Windows in September

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Speaker 3: is what creates the negative period.

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Speaker 1: In September the fiscal year.

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Speaker 2: Then in September thirty.

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Speaker 3: And also the October thirty first botch of front deadline

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Speaker 3: by the irs, where you got a file, you got

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Speaker 3: to reconcile your accounting for the ten months of the

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Speaker 3: twelve months.

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Speaker 1: And you know, so let's talk about what I know

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Speaker 1: as your all time favorite seasonality factor. Sell in May

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Speaker 1: and then go away.

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Speaker 3: I always say you got to buy in October to

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Speaker 3: get your portfolio sover.

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Speaker 2: So again, this was something that you know.

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Speaker 3: David Aronson is a technical technician through the CMT organization

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Speaker 3: as well as a brute college. He did a book

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Speaker 3: in eight which was our best investment book of the

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Speaker 3: year called Evidence based Technical Analysis.

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Speaker 2: Oh sure, I remember that.

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Speaker 3: So what he did was he took six thousand plus

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Speaker 3: about sixty two hundred different black box systems and put

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Speaker 3: them through the scientific method, which I had to learn

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Speaker 3: what that is that testing the null hypothesis.

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Speaker 1: Taking it, taking it out of sample, running it against

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Speaker 1: other is shoes, not just cherry picking the best assortment

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Speaker 1: of dates.

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Speaker 3: Right, and seeing if any of these systems had predictive

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Speaker 3: power or were just a result of chance. So when

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Speaker 3: we picked that book, we said, David, can you take

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Speaker 3: the best six months and do the same thing. So

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Speaker 3: he took it from Yale invented that strategy, the best

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Speaker 3: six months Switching strategy, and it was in nineteen eighty

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Speaker 3: six and the eighty seven Almanacs, so he took it

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Speaker 3: from eighty seven forward so that he didn't have any

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Speaker 3: of the back test bias in that and he found

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Speaker 3: that unlike any of the other six thousand plus different

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Speaker 3: black box systems, the best six months switching strategy had

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Speaker 3: predictive power and the results were not.

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Speaker 2: The result of chance.

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Speaker 3: So It is one of the main overlays we have

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Speaker 3: in our newsletter and portfolio construction that we do.

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Speaker 1: So rationalize this. What is it about May, June, July, August,

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Speaker 1: September that seems to be so met.

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Speaker 3: Well, I mean I mentioned the October thirty, first weeks

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Speaker 3: of fund deadline, which creates that sort of low period.

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Speaker 3: You have the you know, most of the human race,

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Speaker 3: most of human beings live in the northern hemisphere, right,

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Speaker 3: most of the land masses up there. So we have,

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Speaker 3: you know, this period of time where you know, there's

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Speaker 3: a lot of light from May through September, and we

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Speaker 3: do a lot of other things.

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Speaker 2: I've seen you go on fishing.

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Speaker 3: Trips, I play a lot of golf, My kids go

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Speaker 3: to camp, people go on vacation, okay, And.

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Speaker 2: You know, you remember, everyone's distracted else everyone's distracted.

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Speaker 3: And you know when you have lower volume stock sandaco

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Speaker 3: down especially you know, after you've come into the Q

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Speaker 3: four and Q one with all that extra money and

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Speaker 3: all that extra buying. So it's a it's a not

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Speaker 3: a vicious cycle, but it's a regular cycle of the

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Speaker 3: flow of cash and money in and out of the market,

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Speaker 3: and people try to debunk the best six months by

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Speaker 3: going back to eighteen ninety six when the dow started

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Speaker 3: and you know, it didn't work back then, but back

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Speaker 3: to people.

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Speaker 1: Really didn't go on summer vacation. There weren't a lot

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Speaker 1: of sleepway camps back then.

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Speaker 3: No, And you know, it was a farming agrarian society

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Speaker 3: where I was worked, where money pretty much buying me

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Speaker 3: in the first half of the last century of the

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Speaker 3: twentieth century, where money would come into the agriculture that'd

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Speaker 3: be buying a fuel, seed, you know, fertilizer equipment, and

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Speaker 3: they also were borrowing money. And then when the loans

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Speaker 3: came due at harvest time is when the market rolled

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Speaker 3: over in September.

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Speaker 1: So this is the inverse of that. So what's the

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Speaker 1: worst month of the year for stocks.

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Speaker 3: August or September, depending upon if you go back to

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Speaker 3: nineteen fifty or eighty seven post crash. So I mean,

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Speaker 3: and they delivered this year back to back.

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Speaker 2: That was the low. August.

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Speaker 1: September was the low this year, and we had an

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Speaker 1: amazing November following that. October was pretty good.

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Speaker 2: November was October was in turn.

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Speaker 3: October was the turn, which is I mean, there's a

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Speaker 3: picture from the sixty nine Almanac, which shows that you know,

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Speaker 3: October bear killer bargain month, the best time to buy stocks,

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Speaker 3: especially small and tech stocks.

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Speaker 2: What are the best months for the year.

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Speaker 3: November, December, January or the three best consecutive months we've seen?

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Speaker 2: You know, October over.

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Speaker 3: Get better on the turnaround, but basically November December are

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Speaker 3: the best. January has gotten a little bit weaker with

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Speaker 3: profit taking. It seems to happen in the new year

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Speaker 3: these days.

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Speaker 1: Last question, we're coming up on the fourth year of

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Speaker 1: a presidential term. It's an election year in twenty twenty four.

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Speaker 1: What does seasonality tell us about presidential election years?

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Speaker 3: Well, I mean, we have a sitting president running for

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Speaker 3: re election and our research shows that you know, as

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Speaker 3: we all know, the market hates uncertainty. So with the

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Speaker 3: same person in office who's running again, whether whatever the polls.

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Speaker 2: Say is one thing.

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Speaker 3: But the fact that the potentiality of the same policies,

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Speaker 3: the same economic, civic and you know, market oriented policies

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Speaker 3: are going to be in play or at least the

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Speaker 3: same mentality, the power of a sitting president is really undeniable.

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Speaker 3: Years when you have a sitting president running for reelection.

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Speaker 3: The Dow is up they excuse me, S and p

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Speaker 3: is up twelve point six percent, twelve point eight percent,

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Speaker 3: excuse me. And when there's an open field, it's minus

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Speaker 3: one and a half percent.

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Speaker 2: Huh So for US.

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Speaker 1: You think it's bullish having a president run for reelection,

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Speaker 1: even if it's against a prior president.

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Speaker 2: There's not a whole lot of data points for the Madrids.

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Speaker 2: You gotta go back a century and chall what's it? One?

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Speaker 3: Amazing that's not a pattern. But anyway, we're bullish for

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Speaker 3: twenty twenty four.

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Speaker 1: It's important to note that while these seasonal trends have

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Speaker 1: been observed historically, they're certainly not guarantees of future performance.

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Speaker 1: Markets are influenced by a wide array of factors, and

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Speaker 1: past patterns do not always predict future results. Markets may

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Speaker 1: have become more efficient than ever between algorithmic trading and AI,

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Speaker 1: maybe that could have an impact on seasonal trends. Regardless,

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Speaker 1: investors should be aware of seasonality and what it might

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Speaker 1: mean in combination with all those other factors. Were their

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Speaker 1: comprehensive investment strategy. I'm Barry Ridolts. You're listening to Bloomberg

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Speaker 1: radios at the money,