To everything, there is a season.
In financial markets, as we’ve been repeating ad nauseam in our Grey Swan Trading Fraternity livestreams, September and October are the weakest months of the year.
October gets a bad rap, thanks to meltdowns in years like 1929 and 2008.
But on average, September has it worst, especially in midterm election years:
While stocks tend to trend higher throughout the year, small pullbacks in the spring and larger pullbacks in the autumn are typical, with a stronger year-end rally in election years.
Historically, there have been several explanations for this behavior.
It’s the fall season, a time when harvests are being reaped, and when capital is needed to close transactions. In the 19th century, that was an excuse for money to flow from Wall Street banks out into America’s hinterlands.
Today, it’s harder to see why this seasonality persists. Yet it does. One reason is that many mutual funds have fiscal years ending on October 31. This prompts tax-loss selling and portfolio cleanup in September/October ahead of that deadline.
Whatever the reason, in election years, a sell-off ahead of the November vote seems like a sensible way to hedge against an unexpected outcome.
Forget the old Wall Street adage “sell in May and go away.” The data says to take profits off the table in August and come back in late October.
These are seasonal trends, mind you.
You will want to be aware of this historic anomaly, too:
A better-than-expected showing from Democrats, particularly of the new socialist-leaning generation, could exacerbate a market decline. In the 2018 midterms, during Trump’s first term, Democrats’ better-than-expected showing turned a seasonal sell-off into a rough decline that lasted until Christmas Eve.
Today’s Pro recommendation is a simple hedge trade that could yield double-digit returns over the next few weeks if the market follows its seasonal pattern and experiences a sell-off.
~ Addison
P.S. Last week on Grey Swan Live!,we hosted John Hunt of Casey’s Crisis Investing.
During our riveting conversation on Live!, we unearthed:
The sovereign debt crisis migrating from Japan to the United States;
The U.S. Treasury’s “Operation Economic Outcast” aimed at isolating Iran from the global dollar system;
What we could expect from the markets as the U.S. midterm elections loom;
Congress’s utter failure in addressing its spending addiction;
And what the subsequent “Debasement Trade” means for “non-government money”, and global resources priced in US dollars…
John even told us about his ongoing affliction: eleutheromania, and the likely yield from his vineyard in Virginia. (Tease: jalapeño wine.)
On the serious side, John relayed an easy-to-understand, simple-to-deploy investment strategy he’s been advising Crisis Investing readers to use to defend against these macro trends.
We’ll be back this week for another edition of Grey Swan Live! – stay tuned for more info.
