Through November 1 of this year, the NASDAQ is up 29.9%, the Dow is up 19.2%, and the most comprehensive U.S. blue chip stock index, the S&P 500, is up 23.5%. Pinch yourself. Are we dreaming? How can the market perform so well in such a slow-recovering economy and a government in a seemingly permanent state of disrepair? Can we possibly keep steaming ahead from this point forward?
History (and market fundamentals) say the clear answer is YES. Let’s start with history. November is typically one of the best months on the calendar to buy stocks. Since 1950, the S&P has risen an average 1.6% in November, but that’s just the appetizer. November often begins the best three months of the year (through January 31) and the best six months (through April 30). Winter provides the payoff of the “Sell in May and Go Away” strategy. The flip side of that chestnut would be “…then Remember to Buy in November.”
We don’t advise selling in May, but if you did, it’s not too late to buy now. In the last 20 years – through three great bull markets and two painful bear markets – the six cold months (November through April) have averaged gains of 6.6%, while the six warmer months (May through October) have averaged just 1.1% gains. The trend is even more dramatic in recent years. Since 1998, the S&P 500 has gained an aggregate total of 145% in the six colder months, while it has LOST 28% in the six warmer months.
In the last four years of this bull market, the cold months (November 1 to April 30) delivered 66.5% gains in the S&P 500, while the warm months (May 1 to October 31) delivered microscopic gains of just 1.8%.
S&P Performance in Cold Months vs. Warm Months, 2010-2013
- For the Six Months Ending:
- YearApril 30October 31
Source: S&P 500, Yahoo Finance
There are several sound reasons why markets tend to rise from November through April. Louis Navellier has written that “seasonal strength is typically caused by year-end pension funding as well as folks tending to be happier during the holidays. As we gather to celebrate Thanksgiving with friends, family, food, and football, consumer sentiment tends to improve, which usually rubs off on investor sentiment and causes an early January Effect. These positive feelings typically continue in the New Year when the stock market benefits from persistent inflows caused by more pension funding in a new year. These strong inflows typically persist through April, so the next six months could be strong.”
November and December Bring Holidays… and Superior Profits
Turning to the shorter term, November as a standalone month has been superb, and so has December, so time’s a wasting for the fence-sitters among us. According to Bespoke Investment Group (BIG), November is the second best month in the last 20 years, behind only April, and December comes in at #3. The Dow Jones Industrials have averaged 1.88% in the last 20 Novembers, while the S&P 500 isn’t far behind at 1.68%.
The track record is even better in good market years, like this. According to Bespoke, “In the 35 years (since 1928) in which the S&P 500 has been up more than 10% year-to-date through October, the S&P 500 has averaged a November gain of 2.57% with positive returns 73.5% of the time. Over the final two months of these years, the S&P has averaged a gain of nearly 5% with positive returns 82.4% of the time.”
In the 13 years in which the S&P has risen over 20% through October 31 (like this year), Bespoke adds: “The average November return gets even better at +3.22% with positive returns in all but two years (1938 and 1943). The last two times the S&P 500 was up more than 20% YTD through October were in 1995 and 1997. In 1995, the index gained 4.1% in November and 5.92% through year end, while in 1997, the index gained 4.46% and 6.1% through year end.” By contrast, November is soft when the full year is bad.