The 'Best Six Months' Anomaly
"Sell in May and Go Away"
This famous adage suggests selling stocks around May 1st and reinvesting around Halloween (Nov 1st). The Nov-Apr period is often called the "best six months."
Doesn't Make Sense
This adage is more myth than reality or is a flawed strategy.
Why it seems plausible:
Summer Doldrums: Historically, lower trading volumes and listlessness during summer vacation months.
SAD Effect: A theory linking seasonal depression in fall/winter to increased risk aversion, depressing prices and setting up higher future returns.
The Data: Relative vs. Absolute Performance
While the Nov-Apr period has shown higher average returns, the May-Oct period is still positive on average. Exiting the market means forfeiting these gains, which is devastating long-term due to compounding.
| Metric | Nov - Apr ("Best") | May - Oct ("Worst") |
|---|---|---|
| Avg. 6-Month Return | Approx. +7.0% | Approx. +2.0% |
| Frequency of Positive Returns | Approx. 77% | Approx. 67% |
| Dominant Sectors | Cyclicals (Tech, Industrials) | Defensives (Staples, Utilities) |
Critical Verdict: Buy-and-Hold Wins
"Time in the market beats timing the market." The cost of being out of the market during the "weaker" but still positive months is immense over time.
| Strategy (1950-2025) | CAGR |
|---|---|
| Buy-and-Hold | 8.05% |
| "Sell in May" | 6.86% |
Turn-of-the-Year Effects
The January Effect
A historical tendency for stocks, especially small-caps, to rise in January. The "January Barometer" suggests January's performance predicts the full year.
Doesn't Make Sense
This adage is more myth than reality or is a flawed strategy.
Historical Explanations:
Tax-Loss Harvesting: Investors sell losers in December for tax purposes and reinvest in January.
Window Dressing: Funds sell losing stocks before year-end reports.
New Year Optimism: Fresh capital from bonuses and resolutions to invest.
The Data: A Fading Anomaly
The January Effect is a classic example of an anomaly decaying as it becomes well-known. Investors now act in December, smoothing out the effect. It has largely disappeared in recent decades.
| Average Jan Return (Small Cap) | Pre-1994 | Post-1994 |
|---|---|---|
| Russell 2000 | +4.37% | -0.05% |
The Santa Claus Rally
A tendency for the market to rise during the last 5 trading days of December and the first 2 of January.
Makes Sense (with caveats)
This pattern has a statistical basis, but may not be a wise trading strategy.
Why it persists:
Holiday Spirit: General optimism among retail investors.
Low Institutional Volume: "The big guys are on vacation," leaving the market to more bullish retail investors.
End of Tax Selling: Selling pressure from tax-loss harvesting subsides.
The Data: A Robust Anomaly
Unlike the January Effect, the Santa Claus Rally has remained surprisingly consistent. The saying goes, "If Santa should fail to call, bears may come to Broad and Wall," as failed rallies have sometimes preceded down years.
+1.3%
Avg. Return
~79%
Win Rate
7 Days
Typical Duration
The Summer Doldrums
The September Effect
September has the distinction of being the market's worst-performing month on average. The reputation for "August being bearish" is a myth; August is typically flat.
Makes Sense (with caveats)
This pattern has a statistical basis, but may not be a wise trading strategy.
Potential Reasons:
Mutual Fund Year-End: Many funds end their fiscal year on Sep 30, leading to selling of losing positions.
End of Summer Reassessment: Investors return from vacation and re-evaluate portfolios, leading to selling.
The Data: The Worst Month
September is the only month with a consistently negative average return. However, it's still positive about 45% of the time, making it a poor bet for market timing.
| Month | Avg. Return (S&P 500) | Win Rate |
|---|---|---|
| August | -0.01% | ~55% |
| September | -0.72% | ~45% |
A Look at the Full Calendar
Month-by-Month Performance
While certain adages focus on specific periods, looking at the average performance of every month reveals the full seasonal picture. This data (based on the S&P 500 since 1950 and sorted by average return) highlights the market's general upward trend and pinpoints which months have historically been strongest and weakest.
| Month | Avg. Return (S&P 500) | Win Rate (% Positive) |
|---|---|---|
| November | +1.82% | ~68% |
| December | +1.49% | ~74% |
| April | +1.46% | ~71% |
| July | +1.28% | ~56% |
| March | +1.13% | ~61% |
| January | +1.07% | ~58% |
| October | +0.91% | ~61% |
| May | +0.30% | ~63% |
| June | +0.11% | ~55% |
| February | -0.01% | ~55% |
| August | -0.01% | ~55% |
| September | -0.72% | ~45% |
Key Observation
Note the strength in the fourth quarter (Nov, Dec) and April, versus the clear weakness in September. While interesting, these are just averages; any single year can deviate significantly from the historical pattern.
Conclusion: The Investor's Takeaway
The Flaw of Market Timing
The single most important conclusion is that attempting to time the market based on calendar patterns is a losing proposition. The data overwhelmingly supports that success comes from "time in the market, not timing the market." Missing the market's best days, which are unpredictable, has a catastrophic impact on long-term wealth.
A Better Approach
Use seasonal awareness to manage emotions and expectations, not to make buy/sell decisions. Understand that September can be weak to avoid panic selling. For tactical investors, consider sector rotation (e.g., cyclicals in winter, defensives in summer) rather than exiting the market.
Focus on long-term drivers, maintain a long-term horizon, and stay disciplined.