Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Seasonality And The Fed Are A Powerful Combination

Stock-Markets / Stock Markets 2013 Dec 02, 2013 - 04:58 PM GMT

By: Sy_Harding

Stock-Markets

The market makes most of its gains each year in its favorable season of approximately October to May. A separate positive influence is the Federal Reserve when it’s providing easy money and low interest rates in an effort to revive a flagging economy.

Those individual influences are so consistent they’ve been memorialized in long time market maxims ‘Sell in May and Go Away’ (to come back November 1), and ‘Don’t Fight the Fed’.


Even in the unusual four straight years of unprecedented Fed QE stimulus, and record low interest rates, the seasonal factor did not go away (although it has been less pronounced). The market was at its strongest when the two influences were combined.

In the last four favorable winter seasons beginning November 1, 2009 through May 1, 2013, the S&P 500 gains averaged 12.8%.

In the last four unfavorable summer seasons to November 1, 2013, the gains averaged only 3.1%.

And even though, thanks to the increasing Fed QE stimulus each year, the market did not have serious corrections in its unfavorable seasons, the S&P 500 was down 0.1% for the unfavorable season in 2010, and experienced a 16% plunge within the unfavorable season before recovering. And it lost 7.7% for the unfavorable season in 2011, and experienced a 20% plunge within the unfavorable season before recovering.

Meanwhile, its gains in two of the last four unfavorable seasons, were an unusual gain of 9.3% in the unfavorable season last year, and 10.9% in the unfavorable season this year, as QE reached $85 billion a month.

We should enjoy the combination of those two positive influences while they last, but be prepared for what happens next, since it looks like for the first time in four years both will become negative at about the same time in the spring.

Favorable seasonality each year usually lasts until early May, but not always.

‘Don’t fight the Fed’, a positive when the Fed is increasing its easy money, becomes a decided negative when the Fed begins to pull back the punch bowl, and that could take place between now and March.   

The Fed is concerned that it has continued its stimulus for so long it risks creating dangerous asset bubbles, and needs to begin removing the punch bowl by tapering it back. Some analysts claim there are already bubble-like conditions showing up in the likes of investor enthusiasm and valuation levels, and expect the tapering to begin at the Fed’s December FOMC meeting.

But the Fed has also provided assurances it will not taper until the economy is strong enough to stand on its own feet.

This week’s economic reports indicate the anemic recovery has still not reached that point.

In the important housing industry, Pending Home Sales unexpectedly declined in October, for the fifth straight month, falling to the lowest level in 10 months. (The consensus forecast had been for an increase of 1.0%). The S&P/Case-Shiller Home Price Index showed home prices were up only 0.7% in September, the smallest amount since last February. Permits for future housing starts were up 6.2% in October. But unfortunately, that was almost all due to a big 17% increase in permits for apartment complexes, still in greater demand than single family homes thanks to the anemic economy. Permits for single family homes, considered to be the important criteria, were up less than 1%. And the Mortgage Bankers Association reported mortgage applications have fallen by 7% over the last four weeks.

The Dallas Fed’s Mfg Index fell again in November. It was at 12.8 in September; fell to 3.6 in October, and now to 1.9 in November. (The consensus forecast was for a bounce back to 5.0).

Last but not least, the Conference Board's Consumer Confidence Index, which unexpectedly plunged from 80.2 in September to 72.4 in October, fell further in November to 70.4. (The consensus forecast was for an improvement to 72.6).

If the Fed meant what it said about not tapering until the economic recovery improves enough to handle it, it will not begin tapering until next February or March.

So, favorable seasonality ends in April, and the Fed is likely to be reversing to the negative side of ‘Don’t fight the Fed’ by then.

Let’s hope the market doesn’t begin anticipating the end of those influences in advance of them taking place.

But it looks like Wall Street and corporations are preparing for that possibility.

When Wall Street and corporations become concerned that a serious market top may be approaching they try to get as much additional money as possible from investors while investors are still confidently buying. So there is usually a sizable increase in the number of initial public offerings (IPO’s) of stock in previously private companies and start-ups, as well as ‘secondary’ offerings of additional stock by established public companies.

So far this year there has been $51 billion of new IPO’s, the most since $63 billion in the same period in 2000, when that market bubble was beginning to burst. And there has been $155 billion in secondary offerings, more than near either the 2000 or 2007 tops.

Still more reasons to be careful and to realize that 2014 is not likely to be anything like 2013.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2013 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Sy Harding Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in