This is a common question that you’ve probably been pondering if you are new to the investing world!
Learning about patterns in market activity at different times of the year can help you in forming a big picture view of the market. While it is important to understand the news and events that occur in the year in forming this view, trading decisions should not be based on them.
Many factors influence the market: politics, economics, social events, news and financial events are just a few. Likewise, there are certain times of the year which do have an impact on price movements.
Let’s take a look at some of these reoccurring events, and how they may impact market performance:
January – The summer holiday period typically has low market volumes, and investors are anticipating expected company results due to be announced in February.
February – Reporting season. Companies announce results up to 31st December. Reporting season can increase volume of share trades as investors reassess their positions in the market.
March/April – This is a period of higher market activity as more companies start trading ex-dividend, then move towards seeing those dividends being paid in cash and put back into the market. April is also when the big three banks report their March 31st half yearly results and begin trading ex-dividend about a week later. Because these banks move at the same time, this has an impact on the market.
May – While the phrase “sell in May (and go away)” relates to the northern hemisphere summer period from June to August, when investors prepare to take an annual break, the phrase is still often repeated in the Australian media, which affects consumer confidence.
June – As the end of financial year approaches, some investors clean out their portfolios to offset their losses with capital gains in mind. Investors might look to grab some well-priced shares at this time.
July – A new financial year presents opportunities to enter the market at a seasonal low.
August – Reporting season. Most companies report their financial year results, bringing news and announcements to the market.
September – “The September swoon” brings some negative connotations from historical events. September has been the month of the stock market’s worst trading days, and crashes.
October – Historically a month of growth. Some investors see October as a good time to start buying again as dividends are being paid and the cash can be put to work in shares.
November/December – “The Santa Claus Rally” – Fund managers clean up their portfolios ready for the end-of-year results.
An awareness of these annual trends can help you understand why the market sometimes moves the way it does. However, seasonality should not be used as a trading strategy by itself. How investors will react to monthly news and events is unknown and factored into the share price on any given day. Other influences on the market, for example, can potentially override these events, and cause it to vary greatly from a ‘normal’ seasonal trend.
There is no proven good or bad time to enter the market based on seasonal news and events. The surest way to be successful is to invest mechanically based on a provable trading system. Mechanical trading systems (like SPA3 or SPA3ETF) guide your decisions with effective timing mechanisms to keep you ahead of market indices.
