There’s an old saying on Wall Street that you’re probably going to hear over the next few days:
“Sell Rosh Hashanah, buy Yom Kippur.”
And no, somebody on Twitter didn’t make this up last week.
This is old-school Wall Street.
Really old school. You can find the saying in newspapers going all the way back to the 1930s.
In 1935, the Altoona Mirror in Pennsylvania wrote about the idea of selling before Rosh Hashanah and buying before Yom Kippur.
By the following year, newspapers were already referring to it as an “old adage in Wall Street.”
Think about that for a second. They were calling it an old Wall Street saying 90 years ago.
The idea behind it was pretty simple.
Wall Street had a large and influential Jewish trading community. During the Jewish High Holy Days, many observant traders stepped away from business.
Some would reduce their positions before Rosh Hashanah because they didn’t want to worry about the stock market while they were observing the holidays.
With fewer traders around, there was less activity in the market. Apparently, people noticed that stocks had a tendency to struggle during this period.
And Wall Street being Wall Street, eventually somebody turned it into a saying.
Sell Rosh Hashanah.
Buy Yom Kippur.
The funny thing is that this wasn’t just some story passed down from one old trader to another.
There’s actually data behind it.
The Numbers Are Pretty Interesting
My friend Jeff Hirsch at the Stock Trader’s Almanac has been tracking this stuff for decades.
Since 1971, the S&P 500 has fallen an average of 0.4% between Rosh Hashanah and Yom Kippur.
The median return is also negative 0.4%.
Over those 55 years, stocks fell 31 times and rose 24 times.
Now, nobody is retiring because they avoided a 0.4% decline.
That’s not the point.
What interests me is that this little piece of Wall Street history happens to land right in the middle of a much larger seasonal pattern that we already know exists.
September has historically been the worst month of the year for stocks.
And this year, Rosh Hashanah begins at sundown tonight, Friday, September 11. Yom Kippur begins at sundown on September 20 and ends the following night.
So here we are.
We’re in September. Stocks have backed off their recent highs. And one of the oldest seasonal sayings on Wall Street is showing up right on schedule.
But here’s where things get really interesting.
Because I’m much more interested in what happens after this period than what happens during it.
Get Your Shopping List Ready
This is the part I care about as an investor.
We’re entering a historically weak stretch for stocks at almost exactly the same time that we’re getting very close to one of the strongest stretches of the entire four-year market cycle.
Those two things might sound like they contradict each other.
They don’t.
Think about it this way.
If you know you want to buy a new television and Black Friday is a few weeks away, are you upset if the price falls before you buy it?
Of course not.
You were already planning to buy the television.
Now it’s just cheaper.
That’s how I’m thinking about stocks here.
We’re in a midterm election year. Historically, the period around the fall of the midterm year has produced some of the best buying opportunities of the entire four-year presidential cycle.
The weakness heading into those October lows has historically set the stage for a much stronger period that follows.
Everybody loves saying “buy the dip.” It sounds great.
The hard part is actually buying one when prices are falling and everybody suddenly has 17 reasons why the world is ending.
But if we’re going to get a dip over the next several weeks, this is exactly the kind of dip I’m interested in.
I’m not telling you the market has to fall because an old Wall Street saying says so. And I’m certainly not selling all my stocks tonight because Jewish traders were doing it 90 years ago.
That’s not how this works.
But seasonality gives us context.
We know September has historically been difficult. We know the Rosh Hashanah-to-Yom Kippur period has also leaned weak.
And, most importantly, we know what has historically come next during midterm election years.
That’s why I’m not looking at weakness here and thinking about running away.
I’m thinking about what I want to own if they give me better prices.
If history is any guide, the next few weeks could give us exactly that.
And with the most bullish stretch of the four-year cycle waiting on the other side, I know what I’m doing if we get it.
I’m getting my shopping list ready.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs