Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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

6 Critical Money Making Rules