Seasonality Revisited
It has been a while since I’ve commented on the seasonal tendency for the stock market to advance in the last three months of the year. A few words of caution before we start our analysis: this is only a statistical trend and not a law without fail. Using research from our friends at Bespoke Investment Group, it is clear that a strong seasonal pattern exists for the S&P 500 in the fourth quarter. Over the past 10 years, the broad US market has been positive 94% of the time with a median return of 5.45% until the close of the year. What’s interesting is where the strength is on a sector and industry level.
The next chart shows the Q4 2019 performance for the top five names based on median performance over the past 10 years. Clearly, metals and mining stocks are the ones to watch as we move into the last quarter of the year.
The specifics become clear as we drill down further into the top 10 positions of SPDR S&P metals and mining ETF (XME). These are all steel stocks or related industries.
Source: FactSet
Keep in mind this is not an endorsement to purchase any of the names presented above. It is the first step in investigating where the seasonal strength should come from if we are looking to add selectively to our portfolios. A further point to remember, XME has been positive 70% of the time in the past 10 years, but this came with three negative calendar years in 2018, 2015, and 2014.
As always, these investments may not be suitable for you at this time or based on your risk appetite. Please contact me, however, if you wish to continue the dialogue.
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