I asked my assistant to do an updated stock market seasonality study.

The data we used was the S&P 500 index from 1927 which we found in Nobel Prize winner Robert Shiller’s database.

We assumed that at the beginning of each year we invested $1 in the index, and we observed how the investment fluctuated over the year. Then we took the average over three different periods of time: the last 20 years, the last 50 years, and the last 86 years.

Here is the chart we got:

My observations:

1.   In all three periods, there appears to be strong seasonality.

2.   October is the reflection point when the good season starts, while May is the reflection point when the good season ends.

3.   Seasonality is strengthening. The last 20 years have stronger seasonality than the last 50 years, which in turn have stronger seasonality than the last 86 years.

It shouldn’t be taken as a certainty that stocks will rise in the good season, it’s simply that the odds are good that they will.  With that caveat in mind, if you have a bunch of cash sitting on the sideline, then October is a good month to start investing.

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