In many recent communications I have been mentioning my expectation of a coming seasonality market rally. The reasoning is there are a couple of positive seasonality patterns that occur that are now coming into play. One of these patterns is due to our recent back-to-back losing months for the market in August and September. This is the first time since 2011 this has occurred and historical performance suggest an expectation of a robust balance of Q4 performance. Looking at the Stock Trader’s Almanac we find going back to 1930 (85 years, excluding 2015), the combination of a down August and a down September has occurred 18 times (21.2% of all years). Of those 18 past years, the following October was up 11 times and down 7 with an average gain of 1.82%. Fourth quarters in those same years have an even better record, up 14 and down 4. The last losing Q4 was in 1977. Recently, the last three down August/down Septembers in 1999, 2001 and 2011 were followed by double-digit gains in the fourth quarter. 1999 and 2011 were presidential pre-election years, just like this year.
There are, of course, no guarantees but the probabilities of this seasonality pattern combined with that of the expected annual Santa Claus rally are compelling arguments to insure your accounts are adequately exposed to risk assets through the balance of the year. As always, it is critical to have an exit strategy mapped out beforehand incase the market wants to prove the seasonality thesis wrong.