Ever noticed how seasons influence life significantly beyond just the weather? Interestingly, they also impact phenomena such as the stock market. Paying attention, you’ll see the performance of the market can vary based on the month of the year and even specific days in a month. Like us, the stock market experiences seasonal shifts, driven by the flow of money, which is often dependent on consumer behavior. If you understand these shifting patterns and seasonal changes, you could use them to your financial advantage. Here are six notable ways the stock market reflects seasonal variations, and how you can leverage them for your financial pursuits.
1. Year-End Stock Sales
Numerous astute investors take advantage of the year’s end to claim capital losses, which offset any of their gains for tax reduction. To do this, they assess their portfolios and sell off any declining stocks from the year. With many people selling stocks in December, being ahead of the curve and selling your declining stocks sooner can yield an advantage for you.
2. The January Boost
Post-holidays, certain stocks, specifically small cap and value stocks, experience a significant upward nudge. This happens because investors kickstart the new year with fresh enthusiasm, pushing prices upward. To benefit from this trend, consider purchasing small-cap or value stocks towards the end of December, and you might witness a substantial price surge in January.
3. Monthly Shifts
The transition between months also incites certain trading patterns. One such trend is the cyclical rise of stock values at the commencement of the month and a fall around mid-month. Making your contributions in the middle of the month, rather than the beginning, can work in your favor. Another strategy is investing on the first day of each month and keeping cash for the remaining days. But tread carefully with this approach, as it doesn’t always work, and other factors and trends should still be considered.
4. Monday Lows
Mondays tend to reflect a universal sluggishness, impacting not just individuals but the stock market as well. Stock market values typically dip on Mondays, making it an excellent day to consider buying stocks.
5. The Holiday Surge
The festive cheer of holiday seasons often leads to a rise in optimism, and this positivity can reflect in the stock market’s performance. Major holidays like Thanksgiving, Christmas, and Independence Day usually witness an uptick in market trends. To leverage this, consider purchasing stocks close to a holiday period. However, remember to examine the transaction costs to ensure they don’t offset the potential benefits.
6. Cyclical Changes
Each time of the year offers highs and lows. Some months are known for their flourishing stock market performance, while others are notably dull. Typically, May through October may not be particularly fruitful for your portfolio, particularly May, June, August, and September. Contrastingly, November to April are generally strong performers, with February being a notable exception.
The influence of seasons extends beyond weather changes. It’s clear that time of the year can impact people’s moods and actions – something which translates into our spending and investing habits. This is why the stock market mirrors seasonal variations. While it’s crucial to examine market trends and do your due diligence, it can be beneficial to note seasonal patterns and incorporate them into your investment decisions.
Evaluate these patterns yourself, seek advice from your financial advisor, and see how you can utilize seasonal trends. You might find these serve your financial goals well. Do you keep track of seasonal market trends? Ever tried season-based investing?
Source: SmartAsset.com
