Seasonal patterns in the stock market have been well-known to investors for nearly a century. They worked in the past, continue to work today, and will likely remain effective for the next 100 years.
Why do seasonal patterns work and will continue to work?
It’s simple. Let’s consider an example: most of you have likely heard of the so-called “Christmas Rally.” This phenomenon occurs as people begin purchasing Christmas gifts around Thanksgiving (taking advantage of big discounts and sales) and continue shopping up until Christmas Day. This surge in consumer spending translates to increased profits for companies like Macy’s, Amazon, and others. Naturally, one of the primary drivers of a company’s stock price growth is its revenue. That’s the essence of it.
Now, ask yourself: under what conditions might this phenomenon no longer hold true?
The model you see above , visualized as histogram bars, is an index composed of various seasonal patterns.
What are seasonal patterns?
Seasonal patterns in the stock market are trends that happen at certain times of the year, like holidays or specific months, when stock prices tend to go up or down. For example, stocks often do well in December because of the “Santa Claus Rally” and may be weaker in September. It’s like how certain fruits grow better in summer or winter—stocks also have their “seasons” when they behave in predictable ways!