Here at Trendlabs, we focus on analyzing the behavior of the markets, and therefore we must also analyze the behavior of market participants – the humans.
We’re always looking for divergences between what people are thinking and what the market is actually doing.
One of the ways to analyze human behavior is by observing changes in activities, wardrobe, and the company we keep throughout the year.
For example, in the summer we go to the beach, we wear less clothing, and we hang out with our neighbors more.
In the winter, we don’t go to the beach at all. We go to the mountains, and we probably spend more time indoors. We spend more time with family over the holidays, and we wear heavier clothing.
It’s just different. The weather is different, the days get longer and shorter, our moods change.
There are so many differences throughout the year – and if you think these behavior changes don’t impact our decision-making in the market, I’m afraid you probably don’t understand humans.
Of course seasonality affects our buying and selling decisions in the market.
Besides, we’ve quantified it, and we can actually see exactly how our environment, weather patterns, the people we hang out with, the clothes we wear and the places we go generate ups and downs in markets.
S&P 500 Seasonality
This bar chart shows the annual seasonal pattern for the S&P 500 going back every year since 1950:
As you can see, the market’s seasonally strong period is coming to an end this month and a historically weaker few months are ahead of us.
Look at the annual returns for August and September.
This is the worst two-month period for the stock market throughout the year, as it prepares for that year-end ripper beginning at some point in October.
“Buy in October and get yourself sober,” is how I learned it from my friend Jeff Hirsch, the editor of the Stock Trader’s Almanac.
But I want to make something perfectly clear: Seasonality is not something we generally want to position for ahead of time.
In other words, just because the market is supposed to be strong, from a seasonal standpoint, doesn’t mean we blindly buy stocks.
Same thing to the downside. Just because we’re entering a seasonally weak period doesn’t mean we blindly sell our stocks.
In my experience, the value of seasonality is in looking at the market after the fact and asking, “Did the market ignore these seasonal trends, or did the market acknowledge them and act accordingly?”
When stocks are strong during a seasonally weak period, that’s evidence of underlying strength in the market.
When stocks are weak during a seasonally strong market, that’s evidence of underlying structural problems in the market.
We saw that at the end of 2007 heading into 2008. Stocks were supposed to be strong, but they were already rolling over… into the Global Financial Crisis/Great Recession.
On the upside, I remember 2016 well, before Donald Trump got elected the first time, stocks were stronger than they should have been historically.
And the S&P 500 went on to have one of the greatest and least-volatile years ever in 2017.
Post-Election Years
Here’s a chart showing only the average post-election year market performance going back to 1950.
This one is taking the four-year cycle and looking at every year following a presidential election:
The blue line is the average year, and the red line is the current year to date.
Notice the upcoming decline in the seasonal average:
Cycle Composite for 2025
Some of our predecessors over the years – particularly Jeff Hirsch and the Stock Trader’s Almanac and Ned Davis of Ned Davis Research, two of the best who ever did it – have inspired a good trick.
What we’re doing here is combining three cycles – the annual cycle (going back every year since 1950) and the Election Cycle (every post-election year since 1950) as well as the Decennial Cycle (taking the fifth year of every decade since 1950).
This is a composite look at all three of the major cycles, including the Decennial Cycle:
Notice how the S&P Cycle Composite also shows the S&P 500 entering what is historically a weaker period for the market.
Seasonality is something that I’ve seen get misused a lot, and it’s often misunderstood.
We don’t literally “sell in May and go away,” as you’ll hear some people suggest.
That’s not how this works.
We want to follow the seasonal trends, and when the market ignores these trends we want to pay more attention.
Is the market strong during a seasonally weak period? That’s a bullish sign.
Is the market weak during a seasonally strong period? That’s a bearish sign.
Most people don’t think about it this way.
And they’re all wrong.
Let’s stay focused and do this right.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs