On financial networks and in finance classrooms around the globe, stock market volatility is routinely mis-classified as “risk.” Unfortunately, this erroneous view causes people to make investment mistakes.
Elroy Dimson, a London Business School professor once wrote, that risk “means more things can happen than will happen.” It’s an eloquent way for describing risk,
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What’s your investment portfolio’s performance? Do you know? Just 57% of U.S. adults are “financially literate,” according to a study from Standard & Poor’s titled the “2015 Global Financial Literacy Survey.” Another study by a large insurance company found that people are more frightened by planning their finances than dying.
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Heading into the final trading month of the year, the U.S. stock market has history riding on its side.
The Dow Jones Industrial Average (NYSEARCA:DIA), the S&P 500 (NYSEARCA:SPY), and the Nasdaq Composite (NasdaqGM:ONEQ) have all posted average of gains between +2.3% to 5.1% during the fourth quarter of pre-election years in the past 66 years.
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The extraordinary performance of U.S. stocks over the past six years has been like the 1960s Boston Celtics: Dominant and unbeatable. But is the tide changing?
From 2009 to present the SPDR S&P 500 ETF (NYSEARCA:SPY) has gained almost +135%, while the SPDR S&P MidCap 400 ETF (NYSEARCA:MDY) surged +149.72% and the iShares S&P SmallCap 600 (NYSEARCA:IJR) jumped +153%.
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Although we know market prices always trump seasonality in terms of importance, we shouldn’t completely ignore the significance of historical seasonal trends.
Since 1996, the S&P 500 (SNP:^GSPC) has ended higher during the month of January 55% of the time but with a flat return. This particular January appears to be an obvious divergence from this trend.
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