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As the nervous investors continue to scrutinize the performance of the S&P 500, there seems to be serious pressure mounted on the index. With rotating concerns surrounding inflation, speculative excess, a potential tapering of Federal Reserve asset purchases, and the global spread of the delta variant of COVID-19, there’s no shortage of bearish narratives. However, seasoned investors remain vigilant and hopeful, not least because of the timeline – we’re stepping into November and December, traditionally strong months for the S&P 500. But is ‘seasonality’ reliable enough to serve as an anchor amid such turmoil?
A Closer Look at Seasonality
Seasonality refers to the recurring tendencies or patterns in asset classes, such as stocks, during specific periods like months, weeks, or even specific days. In the case of the S&P 500, history shows that the market tends to see higher-than-average returns in November and December. This phenomenon, often referred to as the Santa Claus Rally, tends to provide a valid boost to the stock market.
Despite the worries that haunt the stock market, the potential impact of the seasonality factor could tilt the scale. Sam Stovall, chief investment strategist at CFRA, points out that the S&P 500 has posted an average gain of 1.5% in November and 1.3% in December, over the past 75 years. Can this seasonal trend continue to offer some cushion to the market, as it faces its present challenges?
Market Under Pressure
Over the past few months, the S&P 500 has been consistently under pressure, largely due to macroeconomic factors. The rise of the delta variant and its impact on global economic recovery, coupled with issues like inflation fears, have not been kind to the index. Moreover, expert analysts can’t dismiss the impact of the tapering of the Federal Reserve’s asset purchases that are expected in the near future.
Given all these factors, it’s understandable why investors are showing concerns and the question looms if the strong seasonality can save the index. While historical data illuminates the potential for a ‘Santa Claus Rally’, it’s also fundamental to acknowledge the current unique challenges. Seasonality alone might not be able to give the S&P 500 an absolute reprieve.
The Intersection of Seasonality and Uncertainty
In essence, seasonality intersects with the present uncertainties, and its impact can indeed fluctuate with the dynamic conditions of contemporary parameters. The circumstances today are different from any other year – the pandemic is still raging, fears of inflation are hitting hard, and the impacts of the Fed tapering are unpredictable.
Moreover, the S&P 500 index is not immune to the impacts of other global economic developments. Geopolitical risks, other seasonal factors, and institutional buy/sell pressures also influence the overall market trends.
Moving Forward with a Balanced Outlook
So, while seasonality does offer some solace, it surely cannot guarantee the S&P 500 against current
