A Note from our CIO - Q4 2017
As a native New Englander, I am well acquainted with the changing seasons. The term “seasonality” only crossed my radar, however, when I entered the investment business. Seasonality refers to historical patterns in stock market returns. The old adage “sell in May and go away” is a good example. Historically, the months of June through September are the weakest for the stock market. That seasonality did not occur this year — the U.S. stock market gained more than 5% over those months in 2017.
It shouldn’t be a surprise that 2017 is ignoring historical conventions. On average, we see a 5% sell-off every 50 trading days — currently, it has been 323 trading days since we have had a 5% sell-off. A 10% sell-off takes place every 167 trading days on average — roughly once every 8 months. Currently it has been 417 trading days without a 10% correction. Stocks have been on a roll, benefiting from synchronized global economic strength.
To return to the concept of seasonality, the fourth quarter tends to be a strong period for stocks. In fact, November and December have historically been the two strongest months of the year. If you pair strong economic fundamentals with a tailwind of good seasonality, we would not be surprised to see a strong conclusion to what has been an excellent year for stocks.
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