The stock markets, as year-round institutions, experience seasonal changes throughout the calendar year.

Experienced investors might play to the seasonality of the equity markets by purchasing or selling shares at specific times of the year, contributing to market volatility.

In this post, we’ll look at some of those key seasons and holidays and explain how they’ve impacted the market historically.

Jumps in January

How does the New Year make you feel? Excited about executing some of your resolutions? How about executing some new trades? Share prices tend to follow seasonal trends, and the new trading year is definitely one of those.

The markets tend to perform well at the beginning of the year as January opens up more or new capital to certain investors who want to move on from the previous quarter.

January is a volatile time for the markets too, as you’re likely to see aggressive traders make big moves in an attempt to push up share prices for the start of the season. For this reason, January has a reputation for large erratic price movements and increased market activity.

Traders like to believe that a stock’s January performance will dictate its success for the rest of the year.

Around May, you may see the markets start to cool off. The approaching summer months are when executives, fund managers and big traders tend to go away on holiday.

Because these traders won’t be paying their usual hyper-attention to the market and their stocks, they usually sell some of their shares or alternative assets before vacationing in order to mitigate their risk.

The saying goes: ‘Sell in May and go away. Don’t come back ’til St. Leger’s Day.’

Trading volumes, market activity and market liquidity can all be lowered in the summer. Any big trades during this time could have a serious impact, making summer another volatile period like January.

Long weekends and national holidays

Whenever a long weekend or national holiday approaches, share prices have been known to rally before the holiday break.

The week leading up to US holidays such as Thanksgiving or Independence Day, for example, might see big buys or big sells. Analysts sometimes attribute the increased market activity to the sheer optimism and high spirits associated with upcoming holidays.

Consumers also tend to spend more money over a holiday – just look at Christmas time – which can affect retail share prices.

Apart from Christmas and New Year, here are some more US holidays to be aware of:

• Presidents’ Day (mid/late Feb)
• Good Friday (Mar-Apr)
• Memorial Day (late May)
• Independence Day (Jul 4)
• Labor Day (early Sep)
• Election Day (Nov)
• Thanksgiving (late Nov)

Holiday trading strategy

A common holiday-minded trading strategy among traders is to purchase shares one or two days before a holiday. Short-term traders generally may often look to sell just after the holiday, while long-term investors would want to wait until the end of the year.

Because some traders sell off their shares before a holiday (to mitigate their risk or avoid bad news), the days leading up to the holiday may actually see declining stock prices. This could make pre-holiday a good time to buy at a lower price.

Always remember that seasonality is just one element affecting stock trends. The time of year should only make a small contribution to your total trading strategy.

Published: 9 October 2018

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.