A reader asks, with regard to my post about S&P 500 volatility through the years:
According to the Stock Trader’s Almanac one gets the impression that there was a year end rally in 1929, 1930, 1931 and 1932. Would it have been a profitable trade to own the S&P500 during these years for the period from December to March?
Well, here are the closing S&P 500 numbers for the first day of December, January, February and March, plus the last day of March during those years:
1929-1930: Dec. 2 20.95, Jan 2 21.18, Feb 1 22.93, March 1 23.45, March 31 25.14
1930-1931: Dec 1 16.80, Jan 2 15.85, Feb 2 16.16, March 2 17.52, March 31 16.69
1931-1932: Dec 1 9.38, Jan. 2 7.82, Feb. 1 8.23, March 1 8.35, March 31 7.31
1932-1933: Dec 1 6.73, Jan. 3 6.83, Feb 1 6.67, March 1 5.77, March 31 5.85
So it looks like the stretch from the beginning of January to the beginning of March was a rare oasis of profitability during three of the least profitable years (1930, 1931 and 1932) in stock market history. December and March, not so much. But the January-February charm stopped working in 1933, which happens to be the year that stock prices finally stopped their long fall (the S&P ended the year at 10.10, up 47% from where it started).
Past performance is no guarantee of future results, and I wouldn’t assign much of any predictive power to this historical data. There is an extensive academic literature about a January effect in which stocks do inordinately well for the first week of the new year, but even that hasn’t held up all that well lately. Still, it would be kind of encouraging to see stock prices fall between now and March 1.
