This week marks beginning of a seasonal rally

Today begins a six-month run that historically trounces the performance of the prior six-month period

Oct 28, 2019 @ 2:07 pm

By Jeff Benjamin

As seasonal stock market trends go, there's nothing quite like the end of October when it comes to bullish outlooks. And this year could be better than most, according to market analysts.

"Investors have been bidding up stocks because they believe the U.S. and China will reach a trade resolution, and there's a 90% chance of a Fed rate cut on Wednesday, and the corporate earnings are coming in better than expected," said Michael Arone, chief investment strategist for State Street Global Advisors.

The current market scenario just adds fuel to the seasonal boost that equity markets historically enjoy this time of year.

"Typically, November and December are stronger months for stocks because companies are paying bonuses, folks are funding their retirement plans, and you're coming off the seasonal challenges often seen in August, September and October," Mr. Arone said. "Then you start to see a natural rebound of hope springs eternal as the calendar year turns over."

In many respects the end of October is the flip side of the investing adage "sell in May and go away."

According to data compiled by LPL Financial senior market strategist Ryan Detrick, not only has Oct. 28 been pinpointed as the best single date for stocks going back to 1950, but it also marks the start of a six-month run that historically trounces the performance of the prior six-month period.

"Since 1950, November and December have been the best months of the year for the S&P and investors know that," he said. "The fourth quarter is always the strongest quarter, and right now there's no recession on the horizon, in our view."

Mr. Detrick's analysis shows a 7% average return by the S&P from November through April since 1950. That compares to a 1% average return for the May-through-October period.

In terms of positive indicators this year, Mr. Detrick points to the fact 2019 could be the first time in history that the S&P 500, gold, crude oil and the 10-year Treasury bond all finish a calendar year with double-digit gains.

So far the 10-year Treasury, up 9.5% this year, is the only thing holding back the record-setting occurrence.

Steve Chiavarone, equity strategist at Federated Global Investment Management, describes himself as a "huge fan of seasonal analysis," but also believes that 2019 comes with some added momentum.

"We're coming out of a summer Brexit vote, another Fed meeting, and unrest in Hong Kong," he said. "But now we've pushed off Brexit, the start to earnings season has been pretty good, and if you look out at everything now, you probably feel better than you did a month ago."

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With that in mind, Mr. Chiavarone expects the S&P 500 Index to gain another 2% by the end of the year and he expects the market to peak next year at between 8% and 15% from where it is today, which is up 20% so far this year.

"Bull markets end in recession, so unless you can put up the recession you gotta shut up about the bear market," he said.

Sam Stovall, chief investment strategist at CFRA, is such a believer in the seasonality of markets that he launched an exchange-traded fund to employ the strategy.

The Pacer-CFRA-Stovall Equal Weight Seasonal Rotation Index (SZNE) is designed around the "sell in May" mantra by overweighting defensive stocks in May, then moving back into cyclical stocks at the end of October.

Over the 12 months through Oct. 25, the fund gained 18.3%, which compares to a 12.8% gain for the S&P Equal Weight 500 Index.

"It's a calendar event that has a lot to do with capital flows related to retirement plans, bonuses, tax refunds and mutual fund rebalancing," Mr. Stovall said.


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