Seasonal investing is for the patient investor with a long-term view. You can use mutual funds, stocks, bonds and even options, but exchange-traded funds are the best way to start. Here are a few strategies from Thackray’s 2007 Investor’s Calendar.
Earnings season officially begins in the first month of a new quarter—January, April, July and October—when publicly listed companies report their financials and give future estimates. Between 1950 and 2005, markets produced positive results through the first 18 days of these months 60% to 70% of the time. Two-thirds of S&P 500 companies actually report after the first two weeks of a new quarter, but earnings pre-announcements tend to dominate the headlines and drive the markets. That’s when investors settle in. After the 18th day, other factors cause moves in the market, so review your positions before then.
Some seasonal investment strategies exploit trends within sectors. For example, the consumer sector consists of two sub-sectors: discretionary (automotive, household, clothes, leisure goods) and staples (food, beverages, drugs). On average, discretionary goods outperform the broader market from Oct. 28 to April 22 and staples outperform from April 23 to Oct. 27. Investors who switched from one sub-sector to the other each year between 1990 and 2006 would have realized a total aggregate gain of 1,119%, compared with 295% in the S&P 500.
Investing in the energy exploration and production sub-sector from Jan. 30 to April 13 and then putting the proceeds into energy equipment and services from April 14 to May 17 yielded an average annual return of 17.2% from 1990 to 2006, compared with 3.7% for the S&P 500 Index. Why? Energy and production is highly leveraged to the price of oil. As valuations rise, investors often grow more conservative and move toward equipment and services.
Over the past 56 years, markets have tended to perform better than average for those investing during the last four days of the month and the first three days of the next month. All of the Super Seven days have average gains above 0.03%—the daily average for the broader market. That’s because stockbrokers who go over their books at month-end look for extra cash to sink into commission-boosting investments. Meanwhile, money managers dress up their portfolios for monthly statements by selling weak stocks and buying favoured ones. The first three days of the following month belong account for spillover and late trades.