Why Q3 2018 Probably Won’t Be As Bearish As Seasonality Suggests

As you probably already know, the stock market’s seasonality is bearish from May – September. That’s where the phrase “Sell in May and go Away” comes from. Q3 (July-September) is usually not a bullish quarter.

But in a previous study, we examined the fact that the S&P 500 has ignored “Sell in May and go away” so far. It went up in April, May, and June.

When this happens (historically), the stock market’s medium-term forward returns are pretty bullish.

More specifically, when the stock market goes up in April, May, and June, it tends to go up throughout the entire Q3 (July, August, and September).

September is particularly interesting. September is usually the stock market’s worst month of the year (average return is -0.5%). But when the stock market goes up every month in Q2, it has a 73% chance of going up in September.

It seems that seasonality has been flipped on its head this year.

Conclusion

As you can see, the stock market has a VERY STRONG tendency to go up in the next 3-12 months when it goes up every single month in Q2. This means that the S&P 500 will probably be higher at the end of 2018 through to the middle of 2019. The forward returns are also VERY BULLISH. The median return for 6 months forward is 12.9%

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