I went into the following research expecting to find more than I did; hence, the title of this post. But since I wasted my time with this, you might as well review the results.
I never did appreciate how truly impressive the “Santa Claus Rally” is. Below is a chart depicting the $SPX Calendar Year Highs by Month. January takes it share of the pie, but has a hurdle rate of zero since it is sequentially first during a calendar year. It is interesting that, since 1950, June has never been the equity market’s apex. October, November, and December combine for a substantial 57.1% of the pie; with December alone achieving the calendar year high more than one-third of the time. It is especially impressive due to its placement in the calendar year sequence.
The real question is: what are the implications of a positive summer? First, it should be clarified that the “Sell in May and Go Away” is not particularly that strong of a phenomenon in and of itself. Rather, it is only relatively weak compared with the other two-thirds of the year. Briefly, May through August is positive more than half of the time since 1950 with a positive median return while September through April is a slightly higher probability trade but with much higher median return.
Combining these data sets the following occurs when May through August is positive:
- September through April is also positive 22 of 33
- September through April median return is 8.25%
- September through December is also positive 27 of 33
- September through December median return is 5.06%
- The month of September is also positive 16 of 33
- The month of September median return is -0.00% (very slightly negative)
- The month of December is also positive 28 of 33
- The month of December median return is 10.45%
Maybe the December profile stands out, but the bottom line is this: the last third of the year tends to be slightly amplified by the momentum of the summer months, but nothing drastically different from every other year. With or without a positive summer, or new YTD high in August (see post here), December is a winner and September is a loser. I’m not talking my book yet as I am long of equity, but my likely exit strategy remains: early September, $SPX 1450, or some combination of the two.