Seasonal Stock Market Investing

With decades upon decades of data to sift through, many stock market pundits will have you believe that markets can be bought and sold according to seasonal effects. Of course, as dividend growth investors we are more concerned with investing in the market at all times rather than trying to time the market. With the magic of compounding the saying, “time in the market is better than timing the market,” certainly holds true. But still, there are many out there who believe in stock market seasonality to guide their investment decisions. Let’s examine some of the more common stock market seasonal themes that numerous talking heads and media experts like to tout.


January Effect

This is a term that is often discussed every calendar new year. The “January effect” actually has come to define two distinct investment phenomena. The first definition of the January effect suggests that the rest of the calendar year will perform as January does. The thinking behind this definition states that, “As goes January, so goes the year.” Of course, this type of observation may be a little too simplistic for many investors to digest as one month of stock market gains or losses cannot truly define an entire year. The second definition of the January effect has its roots with investors seeking to capitalize on stock losses for the current year. The thinking behind this phenomena suggests that investors sell their stocks at year end to harvest losses in order to minimize their current year tax burden. As a result of all the stock selling towards the year end prices depreciate only to recover when the buying back begins at the start of the new year raising prices.


Sell In May And Go Away

Another famous term that always flowers around spring time is the famous, “Sell in may and go away.” The exact cause for this stock market pattern is still largely in question but many of the market pundits will have you believe that the strongest period of any stock market calendar year rests between the months of November to April therefore at the start of May it would be wise to sell your stocks and hold cash till the traditionally stronger autumn season. Of course, as dividend growth investors the very idea of holding cash instead of dividend paying stocks for about six months is sacrilegious. Think of all the lost compounding time for your dividends to achieve.


Halloween Indicator

Related to the “Sell in May and go away,” investment meme is the “Halloween indicator.” If it is wise to sell in May during the theoretically weaker calendar months of spring and summer then the best times to deploy your cash is during the stronger months of November to April. The Halloween indicator then suggests that it is best to begin purchasing stocks around the end of October as stock prices begin to rise into the holiday shopping season.


Santa Clause Rally

Next, we have the “Santa Claus Rally,” mantra. This stock market occurrence typically happens in late December when most bonuses are paid to employees and many mutual fund managers “Window dress” (see below) their portfolios. As a result, a large injection of fresh capital is infused into the market enabling higher prices towards the end of the month. Of course, the Santa Claus rally is somewhat counterintuitive to the January effect whereby investors increase the selling of their losing stocks in order to harvest tax losses for the current year thereby depressing prices. I think you can see how “effective” a lot of these seasonal investment themes really are.


Window Dressing

Finally, we have the “Window dressing” effect which suggests that mutual and portfolio fund managers seek to improve the appearance of their portfolio holdings toward the end of a quarter or calendar year by selling stocks that are under-performing while purchasing high flying names to replace those that are sold. By dumping poor performing stocks and acquiring stocks that are on an upswing an investor might experience even greater price appreciation for these high flying names. By having fund managers “window dress,” they can then report better performing stocks as part of their holdings.


While there are dozens of studies and statistics that support these investment themes it isn’t suggested that one follows them blindly. Does stock market seasonality play any part in your investment decisions? Please let me know below.

44 thoughts on “Seasonal Stock Market Investing”

    • Hi LAH,

      When I hear all these different investment themes I feel exactly as you commented. One day we’ll have a name or theme for every day of the year. It almost seems like a marketing gimmick for the talking heads and experts to chime in. In any case, as an individual investor I feel you should take these seasonal investment themes with a grain of salt and not put too much stock into what they represent. Thank you for commenting.

  1. No, I ignore these seasonal theories and focus on finding value in companies on my watchlist. The beauty, and the beast, or the market is its cyclical nature, and each sector and company is on its own path in that cycle. There are always opportunities, and one must find and invest in those that are available. Sometimes this means taking traditional asset allocation and throwing it out the window, especially early in the accumulation phase when just a couple of purchases can sway the percentages anyways. While you might have a funny looking portfolio for a while (all low-yield, high-yield, consumer, financial, you name it), those opportunity grabs will have a smaller and smaller impact on the asset allocation as time goes on.

    Ultimately, buy the best opportunity available for you, and ignore the noise and those with different situations who might be in a different place in their investment journey.
    writing2reality recently posted…Trades – BHP Billiton (BBL) PurchaseMy Profile

    • Hi w2r,

      I find that pretty much everyone in the DGI blogging community acts as you have described. Ignoring total market performance and fluctuations and zeroing in on the individual stocks that seem to provide the best value at the time of purchase. The real challenge is to ignore the media and financial noise that permeates our investing ecosystem and not become too overly influenced by these seasonal themes just because we hear or read about them. I know that as individual investors we are pretty good at doing that already, however you can’t discount the tiny bit of influence the financial noise still has on on investment decisions. I’ll freely admit, that while I do my own thing, and have been for many years already, sometimes the talking heads or seasonal themes resonate in the back of my head. Thank you for stopping by and commenting.

  2. Hi DivHut,

    I agree with all of what W2R said above.

    I wasn’t aware of these themes before reading the article, so thank you for highlighting them. The key for me is buying great companies when they appear undervalued, and to buy shares in a company every month.
    I’ve only now started to look at the sectors my companies belong in and I’m trying to limit 2 to 3 per sector to minimise risk.

    I think it’s worth knowing about the potential seasonal shifts in stock prices, but not to base any strategy around them. Like you said above – Time in the market is better than timing the market.

    Huw recently posted…Income & Expenses – October 2014My Profile

    • Hi Huw,

      Happy to highlight these seasonal investing themes for you. In the U.S. you hear and read about them all the time, every single year. I think it’s only a mater of time before we’ll have a “seasonal theme” for every month of the year. A “Valentines effect” perhaps? In any case, as you point out, it is probably best to ignore these media hyped themes, that, more often than not just make great headlines and focus on buying individual stocks that trade at fair values. Spread your risk among different stocks and sectors and let those dividends compound over time. I appreciate your comment.

    • Hi DFG,

      Your comment highlights what I wrote in the article. “Time in the market is better than timing the market.” For DGI investors like us it’s always “dividend season.” Thank you for commenting.

    • Hi JC,

      Seasonal stock market investing may make good headlines but not necessarily account for good returns. While many in the DGI community simply invest for the sake of dividend compounding you have to wonder about the millions of other investors out there that pay heed to these media hyped seasonal investing concepts. I always laugh when I hear these themes mentioned on the radio or news and think to myself that this is nothing more than media sensationalism to try and drum up an explanation as to what the stock market is currently doing or headed. Thank you for stopping by and commenting.

  3. I don’t believe in seasonal investing. I believe there will always be some sort of weakness in the market. Even if the Dow is 1,000,000; there will always be a weak stock (at this moment GIS). Search and buy those stocks now and harvest for later. I believe in the plant and harvest technique

    • Hi Jack,

      It is so true that no matter where we are in an economic cycle nor where we are with a particular stock index there will always be an opportunity to buy something somewhere. The key is to seek out those investment opportunities regardless of what “stock market season” we are in. As dividend investors we care more about the ability of a stock to continue to make distributions rather than where a stock might be during a particular seasonal investment theme. Thank you for stopping by and commenting.

  4. These themes don’t play into my investments at all, except at the end of the year. My wife and I have an investing game plan we stick to…..through thick and thin. The exception comes when I’m buying stock in a company, whose stock has had a very poor year. Anticipating tax loss selling, sometimes I’ll hold back some cash for the last couple weeks of the year. Keep in mind I wanted to buy the company anyway, for it’s long term characteristics……but I don’t mind taking advantage of other investors harvesting tax losses…..when i get the chance
    Income Surfer recently posted…Retirement Double Dippers and a FREE Buffett e-BookMy Profile

    • Hi IS,

      Clearly from the comments posted it seems that all of us in the DGI community don’t pay much attention to these seasonal investment themes. Like you, I have an investment game plan that has a time horizon measured in decades and as such I tend to hold my investments through thick and thin. While there were times I could have harvested tax losses I simply held on and continued to invest regularly and average down my cost. If you still have conviction in your stock I see no reason to sell, even if for a tax loss. As always I appreciate you for stopping by and commenting.

  5. I think the last one (the window dressing – I didn’t know it had a name) is actually a real one. Funds really do it as well as purchasing at the beginning of a month and middle of a month which is given by contributions from the public. Another trick funds and hedge managers do is to push stock prices down before monthly options expiration and push them back up on Monday and Tuesday next week to shake weak hands off.

    Other than that, I ignore those anyway nor construct my trades around them.
    Martin recently posted…October 2014 investing and trading resultsMy Profile

    • Hi Martin,

      All those seasonal investment themes are real. There have been numerous studies done on each of them to see how accurate they are going back multiple decades. For the most part I feel that these themes are more gimmick than real investment tomes. As you mentioned in your comment, it really comes down to the ability to manipulate stock prices or overall market sentiment for mostly money managers to take advantage of. Unfortunately, this is the case most of the time in the stock market. Thanks for stopping by.

  6. Seasonally? No. But I am very superstitious when it comes to investing. All my dividend research must be done in my favorite football team’s t-shirt while wearing basketball shorts. This was what I was wearing when I bought my first stock. This tradition must continue from now until my shirt/shorts disintegrate. No scientific proof, logic, or reason. It just has to be done.

    • Hi J,

      From my perspective, these seasonal themes are more media hype than ideas to invest in. Yet, every year we hear the talking heads discussing these seasonal “effects” on the market that can influence your trading style. I agree with you that it’s best to just focus on your long term goal and not fixate on investing trends that make an appearance every few months. Thank you for stopping by and commenting.

    • Hi NMW,

      I couldn’t agree more with you. These “adages” are simply trying to rationalize market events when we all know that the stock market often behaves in irrational ways. Just keep investing for the long term and focus on your passive dividend income goals and not be too influenced by these seasonal investment themes. Thank you for stopping by and commenting.

    • Hi IoI,

      You and I and pretty much every dividend blogger out there does not pay much attention to these hyped media sayings. But think about the millions of other investors that actually put stock into what the talking heads are spouting off and follow these seasonal market trends. While it’s true, as you mention, that you must keep an open mind to other investment philosophies and styles, you must also be able to distinguish between hype and fact. Sometimes that’s easier said than done. Thank you for commenting.

  7. I don’t care about seasonal effects or trying to time the market. Basically I invest when I get a bunch of new money big enough so the transaction fees won’t swallow too much of it. Typically a few times a year though recently my situation is a bit strained so I’m afraid the next stock purchase will have to wait quite some time 😮
    Felix recently posted…The silver investmentMy Profile

    • Hi Felix,

      You sound like you have the right idea. Get that money working for you as fast as possible and not worry about these seasonal “trends” that many talking heads would have you believe. As long as you are consistent in building up your passive income stream you’ll be just fine down the road. I appreciate your comment.

  8. My favorite is the Santa Clause rally. Like you mentioned everyone will be dumping fresh capital into the market the next couple of months which will make our current positions a little more valuable. I don’t see myself following that same trend because I like to stay consistent and would rather make smaller purchases throughout the year. I invested a good chunk of capital this past week because I wanted to take advantage of the L3 Credit card rewards for the final week they offered it. Thanks for the nice written article.

    • Hi DM,

      I’m happy you enjoyed this read and shared your thoughts about some of these seasonal investment themes. The key is to stay consistent and invest regularly, especially if you are a dividend growth investor. Trying to time the market based on these memes may prove to be very faulty over the long haul. Good luck with your L3 buys before those credit card rewards are no longer an option. Thank you for commenting.

    • Hi David,

      Pretty much every dividend growth investor follows the rule you just mentioned. It’s always better to be in the market than try and time it as you have your dividends working for you all the time compounding. Perhaps if staying in cash paid a little more it might be reasonable to try and look for better buying opportunities but the way things are now it’s best to try and be “mostly invested” and tune out these seasonal stock market investing themes. Thank you for stopping by and commenting.

  9. Hi Divhut

    In asia here, we have seasonal that follows the moon here as well. Not sure if it’s truly real but I guess it’s like those events you mentioned above.

    The only one I believe is probably the window dressings done every month when big boys are dumping or eating.

    • Hi B,

      Well, there are many studies and stats that try and show that each of the seasonal investing trends I mentioned are real. I think it’s mostly “experts” trying to find something from nothing. Thank you for commenting.

  10. I’ve also heard that many analysts say that October is a “scary” month for the market…I guess because October is the month that Halloween happens?

    Nevertheless, I don’t pay any attention to these “seasons”. It’s just a lot of noise, and essentially market timing (which I’m really horrible at, so I don’t even bother nowadays). Although, I believe the window dressing effect actually is true, not just for fund managers but for individual investors as well. People will sell off underperforming stocks to snag some cap losses before filing their taxes.
    Seraph recently posted…Recent BuyMy Profile

    • Hi Seraph,

      “Window dressing” seems to be the one investment maxim that gets the most attention from investors. I guess there is no denying the huge impact large fund managers have when they dump or buy shares of a particular stock. As for the other seasonal investment strategies it seems that it matters very little to anyone who is investing for the long term like most dividend growth investors. A seasonal effect really doesn’t matter when investing in terms of decades. Thank you for commenting.

  11. Thanks for sharing this insight DivHut! I hadn’t considered many of these investing themes before. I have bought on upcoming events before, such as my AAPL purchases. I first bought on the split and then before the iPhone 6 reveal. I hate trying to time the market though, so I rarely consider “other” factors when buying or evaluating a company. I do have to admit the AAPL strategy worked so far, as it has went up substantially for the time being.
    Special Agent Dividend recently posted…Weekly Investment Activity – Dividend Growth Investing Recent BuysMy Profile

    • Hi SAD,

      I guess you have to go with what works. I know others who try and time their AAPL purchases exactly as you have described. If it ain’t broke… right? Like you, I haven’t given much thought to these seasonal investment themes either. It just seems pointless when investing for ten, twenty or thirty years out. As dividend income investors we plan to keep our holdings through every “investment season.” Thanks for sharing your thoughts.

  12. DivHut,

    I must say after reviewing you portfolio I was very impressed. The stocks you have chosen will continue to award you well in the future. Also, I noticed what you paid for stocks such as MMM, ABT, CAT, JNJ, this signifies to me that you have been at this for a long time. So I saved your BLOG to my favorites due to the hard work and effort I can tell you have spent building your portfolio. Once again I will visit your BLOG more often to view your superior progress on your way to FI. How long have you been building your portfolio? (I started about (2) years ago)

    China Dividend Mantra (cDM)

    • Hi CDM,

      Thank you for the kinds words regarding my portfolio. I started back in 2007 investing in dividend growth stocks buying as much as I could, which wasn’t that much back then. In recent years I have begun to increase my monthly purchases into the high quality names you see in my portfolio. Barring any sudden missteps by any of the companies in my portfolio, I plan to keep every name listed there for many, many years.

      I’m happy to have you come by and visit DivHut when you can and follow along my dividend journey. Thank you for stopping by and commenting.

  13. Hi DivHut

    Great article, I had heard about a lot of the seasonal themes you mention, but if it was that easy everyone would be rich. I don’t consider the season at all, my timetable is defined by availability of money to invest, either coming from dividends paid by companies I already own, or by payments in from savings.

    Best Wishes
    FI UK
    Financial Independence UK recently posted…November Dividend UpdateMy Profile

    • Hi FIUK,

      I still find it fascinating that the media continues to plug these seasonal investing themes despite their spotty accurateness. Like you, and pretty much every DGI blogger that has commented, I follow my own seasonal themes based on money available to invest and fair valuations. Just because the calendar shows a particular month is no reason to base an investment decision. Thank you for commenting.


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