ChartBrief 131 – S&P 500 Seasonality Stir

It’s very timely to take another look at stockmarket seasonality.  The brief panic last week (barely a 2% selloff) actually came at a moment where seasonality has turned to an increasingly negative bias.  The seasonally bearish bias peaks in later September to early October.  So it’s fair to say that all else equal, the risk of a correction or further selloff(s) is at elevated levels over the coming weeks and months.  Having a solid investment process and analytical system (indicators, framework, etc) to know what to do, should a correction come, will be key.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Despite the seasonal bias, corrections typically don't happen spontaneously without some sort of catalyst. But if you think about it there are a few potential candidates out there e.g. North Korea, Trump/US political risk, Iran, Jackson Hole, September Fed meeting, mid-October debt ceiling deadline, and just plain old fashioned market risk e.g. high valuations and increasingly buoyant expectations.  So whether it's hedging or low-beta plays, or valuation cushions, taking a cautious tone may be a good idea for now.  Makes me think of the value of cash - one asset which arguably becomes undervalued when markets get overvalued!

The 2017 YTD path of the S&P500 overlayed against the historical seasonal pattern. The purpose of using two axes is to compare the signal rather than the absolute % changes.

Voss Capital is betting on a housing market boom

Housing MarketThe Voss Value Fund was up 4.09% net for the second quarter, while the Voss Value Offshore Fund was up 3.93%. The Russell 2000 returned 25.42%, the Russell 2000 Value returned 18.24%, and the S&P 500 gained 20.54%. In July, the funds did much better with a return of 15.25% for the Voss Value Fund Read More

On a similar note, here's the CBOE VIX YTD compared to the historical average levels - coincidentally, this is about the time you actually expect to see VIX trending upwards.

S&P 500 Seasonality Stir

For completeness, here's a more timeless chart which shows the seasonality of the S&P500 and the seasonality of the VIX - they move much as you would expect.

S&P 500 Seasonality Stir

For institutional grade insights on the global economics and asset allocation, and some more good charts you may want to subscribe to the Weekly Macro Themes.  Click through for a free trial.

Follow us on:



Article by Callum Thomas, Top Down Charts