CLASSIC TECHNIQUES
Still As True As Ever
The S&P 500 continues to make most of its gains between November and April and underperform between May and October. Here is an updated look at this phenomenon and how you can put it to use.
From November 1979 until November 2012, the S&P 500 climbed from 101.82 to 1,412.16, a gain of 1,287.23% (Figure 1). In net points, the index gained 1,380.8 during the November–April period but lost 70.4 during the May–October period of this 22-year span.
FIGURE 1: THE RAW DATA (OCTOBER 1979–OCTOBER 2012). Here you see the S&P 500 index values and the percentage change from November–April versus May–October. From November 1979–November 2012, the S&P 500 climbed from 101.82 to 1412.16. That is a gain of 1,287.23%. Most of this gain occurred in the November–April half of each year.
LOOKING AT THE NUMBERS
Using nominal point differences can be misleading: The most recent years are given more weight since the number of points gained or lost is greater for every percentage point change in the S&P 500. Yet, even by using percentage differences, there are dramatic differences between the November–April and May–October spans.
The average November–April span saw a 7.3% change in the S&P 500 (15.1% annualized) versus 1.9% (3.9% annualized) from May–October; the November–April period outperformed the May–October period by 5.4% on average. If you invested $10,000 on November 1, 1979 and moved to cash on April 30 each year, it would have grown to $89,361, ignoring dividends, money earned in cash, commissions, and slippage. By contrast, the same $10,000 invested on May 1, 1980 and moved to cash every Halloween would have grown to $15,520. The November–April investor would have gained 475.8% more.