PODCAST:Masters in Business
TITLE:At the Money: Seasonality In Stocks
DATE:2023-12-20 00:00:00
URL:
MODEL:gpt-4-gizmo
In this episode of "Masters in Business" titled "At the Money Seasonality In Stocks," hosted by Barry Ritzholz, the concept of market seasonality and its impact on investment strategies is explored. Jeff Hirsch, Chief Editor of the Stock Traders Almanac, joins the discussion, bringing his extensive knowledge of market patterns and seasonality.
The podcast begins with an introduction to the phenomenon of seasonality in markets, suggesting that investors, businesses, and economic cycles tend to follow regular patterns, although these are not as predictable as natural phenomena like lunar phases. Hirsch emphasizes the role of behavioral finance in these patterns, citing regular activities such as 401k contributions and bill payments as examples. He notes that mid-month spikes in the market are often linked to payroll deductions and fund managers' need to be invested, leading to a predictable inflow of cash.
Further delving into seasonality, the discussion covers several key patterns and their historical impact on the stock market. The "Santa Claus Rally," a term coined by Hirsch's father, Yale Hirsch, refers to a tendency for the S&P 500 to gain modestly during the last five trading days of the year and the first two of the new year. The "January Effect" is another pattern where small caps outperform large caps, mostly in December and January. Additionally, the "January Barometer" suggests that the performance of the stock market in January can be indicative of its performance for the rest of the year.
Hirsch also discusses the four-year presidential election cycle in the United States, highlighting the third year (pre-election year) as the most bullish. He introduces the concept of the "January Indicator Trifecta," combining the Santa Claus Rally, the first five days of the year, and the January Barometer. This trifecta, when positive, has historically led to significant market gains.
The podcast also touches upon the "Sell in May and Go Away" strategy, which is based on the observation that the stock market tends to perform less well from May through September. Hirsch attributes this to seasonal human behavior, where people are generally more distracted and engage in activities outside the stock market.
As the episode concludes, Ritzholz and Hirsch discuss the impact of election years on the stock market, noting that markets generally respond positively when a sitting president runs for reelection due to the reduced uncertainty. However, they caution that historical trends are not guarantees of future performance and should be considered alongside other factors in a comprehensive investment strategy.
Throughout the discussion, the importance of considering a range of factors, including technicals, fundamentals, sentiment, and macroeconomic conditions, is emphasized. The conversation underscores that while seasonality can provide insightful trends, it is just one aspect of a multifaceted approach to understanding and navigating the stock market.
