Introduction
Coming out of the roughly 10% correction into October last year, share markets saw strong gains on hopes that lower inflation will allow central banks to cut interest rates and as global profits have remained strong.
The going seems to have become tougher though with share markets falling in April amidst interest rate and geopolitical concerns begging the question as to whether it’s maybe now time to “sell in May and go away”given the old saying, in reference to seasonal patterns in shares.
Seasonal patterns in shares
Seasonal patterns have long been observed in share markets. The “January effect” was perhaps the most famous, where January typically provided the best gains, but anticipation of it has seen it morph into December and now November. However, it’s really part of a broaderseasonal pattern, which over long periods has been positive for shares from around October to around May and then weaker to September. This can partly be seen in the pattern of average monthly share prices changes since 1985 shown in the next chart.
The broader seasonal pattern can be seen in the following chart which shows a monthly index for US and Australian shares after the longer term fundamentally driven trend is removed. The general picture of weakness into September often continuing into October – which is known as a “bear killer month” given the tendency for some bear markets to end in October – also gels with the historical tendency for many financial crises to occur around the August to October period – e.g. the 1929 crash, 1987 crash, the LTCM hedge fund crisis and the GFC.
