Stock Returns by Month: Interesting Historical Trends

Stock returns by month are not as variable and unpredictable as one might think, over the long run.

Sure, performance from one month to the next can be quite different. Some months see prices increase, other months see prices decline.  Yes, there are peaks and valleys that appear when you view charts of stock prices. This even happens from day to day, and within days as well.

However, this assessment of stock prices is often made from visual perspective. When you graph prices with a time-series approach, it’s easy to come to that conclusion because it’s true – and very visual.

What happens when you assess performance on a monthly basis, comparing the months to each other over time? Are there some months in which the market performs better than others, over the long term?

Yes, based on my analysis of historical data of the S&P 500.

Here’s what I did: I pulled data (source: Yahoo Finance) showing the opening market value and the closing market value for each month, dating back 40 years.  From there, I downloaded the results into an Excel spreadsheet, and ran pivot tables on the data.

I first assessed the years 2001-2010, in order to see if there was a discernable difference by month.  Here are the results for these past 10 years:

As you can see, the “January Effect” seems to be, in reality, a drop into negative territory when you look at the past 10 years (note that January 2011 is not included here). However, March, April, and May have shown good performance. Additionally, November and December did quite well.

Interesting stuff. The most recent market performance over 10 years shows that some months have been better for the market than others.

After doing this, I thought that while 10 years is the most recent and possibly most relevant time frame, the analysis should be expanded a bit to include more years. So, I incorporated all of the data which I had pulled, and analyzed performance from 1971 to 2010.

Here are the results for a 40-year time period:

When the time period is expanded out to increase the sample size, it’s clear some months have shown better S&P 500 performance than have others.  November to January seem to be good months, then March and April as well.

What about February, as well as the summer months? Performance in these months, over the last 40 years, has clearly lagged that of the aforementioned good times of the year.  There’s a pronounced difference in prices, with February being a clear dip in the middle of good months, and September being the lowest point of multiple poor performing months.  Keep in mind that these are averages, of course, so there could be individual years where performance could be all over the place.

But about those averages I just mentioned….is it worth considering these historical performance averages when making decisions to buy or sell stocks? I’m not an investment professional, so don’t take this as advice, just as my own analysis and thoughts. For me, it gets thoughts racing about a year-long strategy:

  1. Buy in February, with the intent of capitalizing on solid gains over the next few months.
  2. Sell in May, and take the summer off:)
  3. Buy again in October, after the September Swoon.
  4. Sell in January, and engage in profit-taking.
  5. Repeat Step 1.

Note that I’m not recommending a step-by-step approach like this. A year-long strategic plan like this is too much, and every year is different. The supporting data points are averages across time.

However, at the minimum, these trends are worth considering when making (or not making) buy and sell decisions. It’s compelling enough for me to consider that monthly historical S&P 500 performance data like this might tip the odds slightly in the favor of the informed investor, when he or she is considering when to buy and sell stocks. 

The past doesn’t always repeat itself, but it’s important to learn from it to predict future behavior

 

 
 
 
 
 
 
 
 

 

 

Comments

  1. says

    Doesn’t much surprise me to see January and December leading in the long term. The January/December “effects” really do move the markets.

    • Squirrelers says

      JT – Yes, the holiday season and January combine for a historically positive direction for the market. It seems to be a long-term trend, and one worth paying attention to!

  2. says

    This makes me think that buying an S&P Index fund might be the way to go over a long-haul like 20-30 years, no? Thanks for this data. I’m deciding on a few different sources for retirement and wealth building. This is helpful.

    • Squirrelers says

      Little House – thanks, glad this was helpful. I have invested in such funds, and like their low expenses. Not too exciting for everyone though. The big thing I found here was that timing of such investments, based on historical data, can play a role in rates of return.

    • Squirrelers says

      Retirebyforty – in terms of how to use the data, my suggestion is to consider these monthly historical performance averages when choosing times to buy/sell stocks – or perhaps more relevant, an index fund. Like anything else, buy low and sell high!

  3. says

    I have always tried to put my IRA money in in late September/early October, ever since someone pulled out some similar charts in a graduate class. :)

    • Squirrelers says

      Nicole – good that you’re utilizing quantitative analysis. I hadn’t seen this before in grad school in terms of differences of this magnitude by month. It’s interesting stuff.

  4. says

    Thanks for collecting the data and putting together this nice chart – I love posts such as these!
    Feb seems like a good month for the accumulators!

    Historically, September is supposed to be the worst month for the stock market. Guess what happened last year? We had the best run since 1939!

    Good to know, but don’t count on it.

    • Squirrelers says

      Money Cone – glad you liked the post! I agree with what you said in your last sentence – good to know, but don’t count on it. These are historical averages, and have some volatility from year to year. Over time, averaging out the ups and downs, then you see the clear differences. Just take it in that context!

    • Squirrelers says

      PersonalFinance4All – Glad you find it to be an interesting read. Stocks are a part of most retirement plans, so it’s good to read up on the topic!

  5. Everyday Tips says

    Oh my gosh, I almost choked when I read that 1971 was forty years ago!

    I find stock charts fascinating, and I love finding patterns. The hard part is figuring out what sample size is appropriate for the time we are in now. Obviously February is consistently bad, but if you use the forty year performance instead of ten or five year, are you missing opportunity? It is impossible to know, until after the fact. That is probably part of why some people love trading on technicals and others think it is not a good idea.

    Great research Squirrel!

    • Squirrelers says

      Everyday Tips – I know, time flies – 40 years ago as 1971 puts that in perspective for sure

  6. says

    Great post, Squirrelers. There’s no denying the summer doldrums. Even if buying or selling decisions aren’t made with this method, it might help to understand market movements and calm down jittery responses to month-by-month volatility.

    • Squirrelers says

      101 Centavos – thanks, I agree that it’s good to look at the data to help understand month-to-month volatility. By understanding such activity, we can identify opportunites where the odds are in our favor based on historical data. No guarantees of course, but it helps to be informed as to historical averages.

  7. says

    Terrific post. Past doesn’t predict the future, but you could try and use it to gain a small advantage. I don’t know about you, but I need every little advantage I can get! :)

  8. says

    Nice job, I love stats like these! :)

    And to think, I was going to go away in summer and come back in fall… I never realized that April was such a bit month!!! I wonder if part of the reason is because it’s spring and everybody that survived the winter blahs are starting to get happy again!

  9. says

    There was a river that on average was 3 feet deep – 1 foot deep most of the way and 9 feet deep in one spot. People drowned trying to cross that river. Averages are trickier than they look, especially in investing.

  10. maggie says

    I have to name an annual date–non-revocable–for retirement fund distribution. This analysis about averages will help!