The U.S. stock market may or may not rise over the next four weeks. This earth-shattering prediction comes from my composite of stock-market seasonal patterns. Some of those seasonal tendencies suggest the U.S. market will rise through mid-April, while others point to a flat-to-lower market.
I normally wouldn’t bother to point this out. But I decided to do so because some on the internet are claiming that the U.S. stock market exhibits strong seasonal strength through the end of April.
To be sure, no doubt it’s possible to slice and dice the data to support that expectation. But I also have no doubt that it’s possible to slice and dice the seasonal data in another way and come up with the opposite expectation.
My recommendation therefore is to be skeptical of all arguments based on alleged Wall Street seasonal tendencies. At any given time you will be able to find a pattern that supports whatever conclusion you want to reach.
It isn’t that there are no seasonal patterns worth paying attention to; it’s that most of them are worthless, so a skeptical attitude is warranted. The burden of proof is on those tendencies to prove that they are statistically significant.
Take a look at the table below, which summarizes the various seasonal patterns that allegedly are currently in play. This is not an exhaustive list; I compiled it from a cursory survey of studies archived at the Social Science Research Network.
How can it be that seemingly contradictory conclusions can be reached while analyzing past data? One answer is that not everyone analyzes the same data.
Consider the current claim that the favorable winds will be blowing in the stock market’s sails through the end of April. As far as I can tell, this is based on an average of the past 20 years. Sure enough, April is far and away the strongest month over this period. The Dow Jones Industrial Average
produced an average gain of 2.5% during all Aprils since 2000, versus a gain of 0.4% for the other 11 months of the calendar.
But April’s performance prior to 2000 wasn’t always this good. In fact, when we analyze all years since the Dow was created in the late 1800s, we cannot conclude at the 95% confidence level that April’s performance is any different than the average.
The bottom line: For everything there may be a season. We just don’t know which season it is.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at firstname.lastname@example.org