SANTA CLAUS RALLY?

By Surly Trader

Seasonality seems to be a hot topic to talk about in the investment media.  Retail investors like to hear about relationships between months, seasons, political events, superbowls, and the ever enigmatic return of the stocks market.  I have looked at the seasonality of volatility by month and the seasonality of returns by month, so why not hope for a santa claus rally?

Looking at S&P 500 returns since January 1928, we found that December was one of the four months that experienced average returns of greater than 1% (January, April, July, December) with an average return of 1.5%.  If we just look at December returns following negative returns in November, this average goes up to +1.8%:

The other difference is that the percentage of winning December returns goes up to 80% from 74.7% when following a negative November return.   To put this into perspective, the percentage of positive months since 1928 has been about 58% of the time or about 7 months out of the average year.   As of today, we are up .81% in December 2011.  This is not a very scientific study, but it gives the bulls some hope to latch on to for the remainder of the year.

Surly Trader

Share Trading can be stressful, but playing a rigged game is worse. SurlyTrader will explore the hidden game of financial institutions and the government that supports them while providing useful tips on trading strategies, hedging and personal finance. SurlyTrader is a portfolio manager at a large financial institution who specializes in trading derivatives.

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