November: a historically positive month for the markets

With the arrival of November, traders are starting to talk about the seasonality that stock markets tend to show heading into the final stretch of the year. According to the Stock Trader’s Almanac, a resource for tracking market patterns and trends, the S&P 500 index and the Dow Jones Industrials have historically recorded an average gain of 1.7% in November since 1950. Meanwhile, the technology-focused Nasdaq index has risen by an average of nearly 2% in November since 1971. These statistics make November the strongest month of the year for the S&P 500 and the second-best month for both the Nasdaq and the Dow.

This market strength in November comes on the heels of September, which historically has been the worst month of the year for stocks. Several theories explain this behavior. For example, September’s poor performance is typically attributed to the change of season, as well as the end of the summer vacations. Conversely, it’s believed that increased consumer spending during the year-end holiday’s bolsters market performance in the last two months of the year. This is often referred to as the “Santa Claus rally”. However, there is a driver of equity rallies that is less anecdotal and has more concrete evidence following the adoption of tax loss harvesting strategies by mutual funds prior to October 31st. This could have a major impact on markets, given that U.S. mutual funds manage more than US$20 trillion in assets encompassing stocks and bonds.

It’s essential to remember that historical patterns can offer insights into short-term market movements, but they may not always hold true, as each economic situation is unique. Currently, we face a scenario of geopolitical tensions in the Middle East, the expectation of high long-term interest rates and the possibility of a soft landing for the economy.

Average monthly return on the S&P 500 from January 1950 to April 2023 (%)

Source: Stock Trader’s Almanac – CNBC

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