Losing winters in stocks are often followed by losing summers

“Sell in may and go away” for this summer, 2008.

Mark Hulbert has published an article on marketwatch.com in the historic behavior of the U.S. stock market during the summer months, depending on the behavior of the previous winter. It is considered the summer period 6 months from May to October each year, and winter period from November to April.

Perhaps the best-known academic study of the indicator was conducted by Ben Jacobsen in 2002, a professor of finance at the Massey University of New Zealand, along with Sven Bouman of AEGON Asset Management.

According to this article, performance of 36 of the 37 global and emerging stock markets tend to be higher in the period from November to April, in contrast to the period from May to October. The effect “Sell in May”, is particularly strong in European countries and is very robust historically. In these 37 countries the study took place between 1970 until 2001.

But this is clearly confirmed, when analysing data from Dow Jones since 1896. In these 109 years, the Dow has yielded a 5.21% on average within six months from November to April and instead only 1.89% in the summer period.

Moreover, according to the database by Mark Hulbert, with 95% confidence level after winter periods with misbehavior of Dow Jones, tend to follow bad behavior in the period from May to October.

These are the gains in the Dow next summer:

If the Dow has risen in the winter………..…….…… +3.55%
When the Dow has fallen in the previous winter…. -1.46%

The stock market’s summer returns have been far more volatile following losing winters than winning ones, in this case, volatility has historically been a 40% higher than usual.

As Mark said, fasten your seat belts, and hang on for the ride