Spring Seasonality: How The Stock Market Historically Moves In Q2

Longer days and warmer weather can only mean one thing: spring is here. There’s no spring break for stock traders, so knowing seasonal Q2 trading patterns can be extremely helpful this time of year. Here’s a look at some springtime stock-market tendencies.

MONTHLY SEASONALITY

Since 1990, the S&P 500 has averaged a 1.6 percent gain in April, a 1.0 percent gain in May, and a 0.5 percent loss in June.

Not all market sectors have performed equally in the spring months. Since 1999, only two SPDR sector ETFs have delivered positive average gains in the months of April, May and June: the Energy Select Sector SPDR (ETF) (NYSE: XLE) and the Utilities SPDR (NYSE: XLU). The Materials Select Sector SPDR (NYSE: XLB) is the only sector ETF that has averaged negative gains in both May and June in that time.

Interestingly, the market’s June weakness seems to be a relatively new phenomenon. From 1926 to 2004, April and June were two of the strongest months of the year for the S&P 500, producing average monthly returns of more than 1.25 percent each.

SELL IN MAY AND GO AWAY

The most popular seasonal trading strategy of the spring months is “sell in May and go away.” According to this trading adage, traders should sell their stocks at the end of April or beginning of May and not buy back into the market until the fall.

There is certainly some historical context for the trading strategy. Since 1950, the Dow Jones Industrial Average has averaged just a 0.3 percent return during the May-October period. At the same time, it has generated an average gain of 7.5 percent from November to April.

The “sell in May” seasonality can easily be visualized in the S&P 500 seasonality chart below.

You can see how the index has historically trended mostly sideways from May through October before resuming a seasonal uptrend in November.

MARKET FUNDAMENTALS TRUMP SEASONAL PATTERNS

While these seasonal trading patterns may seem like easy money, traders should remember that underlying market fundamentals and news headlines can override any seasonal patterns on any given year. In fact, the S&P has gained ground in the month of May for the past four consecutive years. If you extend that timeframe out to the entire “sell in May” period from May 1 to November 1, the S&P has averaged more than a 4.6 percent gain during that six-month stretch over the past four years.

Historical trading patterns can certainly be helpful trading tools, but they are…

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