There are plenty of historical tendencies that we need to be aware of, especially from a short-term trading perspective. In all of my work, one of the most obvious is how much better the U.S. stock market performs as we wrap up a calendar month and head into a new one vs. other periods throughout the calendar month. On the S&P 500 since 1950, here are the annualized returns as we
transition from the end of one calendar month to the beginning of the next:
28th: +20.76%
29th: +18.91%
30th: +13.79%
31st: +29.19%
1st: +46.45%
2nd: +34.00%
3rd: +25.49%
Those numbers are rather amazing when we consider that the average annual return over the past 7 decades is approximately 9.00%. If every day were created equal in the stock market, we'd see daily averages somewhere around that 9.00% level. Instead, the reason that we see outperformance at the end of month is that professionals are buying stocks in anticipation of money flows coming in at the beginning of
the month from pension funds and IRAs. These monies come in every month like clockwork. The spike at the beginning of the month results from actual new money coming into the market.
Please don't view these numbers as any sort of a slam dunk that prices will rise this week. That would be a huge mistake in my opinion. But if you're bearish, it's a simple reminder that historical tendencies don't line up with those bearish thoughts. Still, we're in a very irrational market and the volumes have been massive of late. If ever there's a time to ignore the historical tendencies of
the stock market, now would be one of those times.
