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Index Research

Equities Hit All-time High, Yield Curve Normalizes and Seasonality Sets In

November Monthly Market Update - Jay Gragnani, Head of Research and Client Engagement, Nasdaq Dorsey Wright, breaks down yield curve and seasonality.

#TradeTalks: Yield Curve and Seasonality; NDW Monthly Update

Over the course of the past month, the major market indices managed to rally to new highs, and in the case of the S&P 500 (SPX),  the Index was able to breakthrough notable resistance that had formed on the chart. On three separate occasions, the S&P 500 rallied to the 3020 area between July and September. Finally, in October, the S&P 500 was able to breakthrough that resistance level with a move to 3030 and has since rallied to 3080.  

NDW Oct. Chart 1

The turn of the calendar to November has many investors cheering the end of October with all eyes now on U.S.-China trade discussions, corporate earnings, and the Fed. November also begins what is known as the “seasonally-strong” six-month period for the market which lasts from the beginning of November through the end of April. We are all familiar with the saying "Sell in May and go away," which posits that we would do just as well to sell all of our holdings as we would be invested in the market during the months of May through October. Typically, conjecture doesn’t mature into adage without some basis in reality and “market seasonality” is just such an example, as it has shown an impressive trend in terms of magnitude, consistency, and longevity. We’ve discussed seasonality many times over the years as we switch between seasonally-biased strong and weak periods.

The end of the October closes the book on the seasonally-weak period for 2019, which began with the close of the market on April 30th. Over this period, the Dow Jones Industrial Average (DJIA) returned 1.70% while the S&P 500 was up 3.11% and the Nasdaq-100 was up 3.89%. 

The premise of market seasonality is essentially that, historically speaking, the market performs far better during November through April than it does from May through October. On its own, that isn't a particularly profound statement, however, when we examine the magnitude of this effect over the years, its significance becomes clear. Consider this: If you had invested $10,000 in the Dow Jones on May 1st and sold it on October 31st each year since 1950, your $10,000 would have only grown to $11,700. Meanwhile, the same $10,000, invested only during the seasonally-strong six months of the year, would now be worth over $1 million! Put another way, almost all of the growth of the Dow Jones Index since 1950 has effectively come during the "good" six months of the year.

As mentioned above, we are coming off of the seasonally-weak period which, in spite of its reputation, saw most major indexes produce gains this go-round. Despite the recent volatility, US equities remain the number-one-ranked asset class in DALI, and the major indexes are sitting at, or close to new all-time highs. Additionally, the NYSE Bullish Percent (BPNYSE) has returned to bull confirmed status at 52%. While this does not guarantee that we will see a strong equity market over the next few months, the reversals up from some of these indicators has provided some evidence of new demand coming back into the market as we enter the seasonally-strong period.

NDW Oct. Chart 2

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Dorsey, Wright & Associates, LLC, a Nasdaq Company, is a registered investment advisory firm. Registration does not imply any level of skill or training.

Unless otherwise stated, the performance information included in this article does not include dividends or all potential transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. 

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