Stock market seasonality is a well-established phenomenon that has been observed for many decades. Certain months consistently outperform others, and others underperform.
Investors can use this information to set realistic expectations, avoid emotional mistakes, and potentially capitalize on seasonal weakness.
In this post, we’ll cover the following:
- The most bullish and bearish months of the year.
- The reasons behind the existence of these patterns.
- Practical strategies for how to use seasonality without falling into the trap of trying to time the market.
What Is Stock Market Seasonality?
Seasonality, in the financial markets, refers to seasonal or predictable changes in price that recur every calendar year. For example, retail sales typically spike in December every year because of holiday shopping. Something similar happens with the stock market.
The most well-known seasonal market adage is “Sell in May and go away.” This means that, historically, the market tends to perform better between the months of November and April than it does from May to October.
It’s important to note that the markets do not necessarily crash in the summer and rise in the winter each year.
Instead, we are talking about probabilities and averages. If we look at decades of market returns, the data shows surprisingly clear trends.
Bullish Months: The Best Times of Year
The best-performing months of the year for the stock market are November, December, and April.
Here is an overview of each:
November: Kicking Off the Strong Season
November is an interesting month. Historically, it has one of the best long-term track records for stocks.
Since 1950, the S&P 500 has generated average returns of about +1.5–2% in November, which is among the best-performing months.
There are a number of factors that might be at play, including:
- Holiday optimism and higher consumer spending.
- Institutional investors repositioning their portfolios before the year-end.
- Early indicators of the so-called Santa Claus rally often begins in late December.
If we look at historical data, November often marks the beginning of a multi-month rally that will continue through April.
December: Santa Claus Rally
December is often the single strongest month of the year. Roughly three out of every four Decembers since World War II have ended with gains.
One unique factor that contributes to the market’s performance in December is a phenomenon known as the Santa Claus rally.
This refers to a tendency for stocks to go up during the last five trading days of December and the first two trading days of January.
There are a number of theories for this rally, including:
- Holiday consumer spending.
- Positive investor sentiment going into the new year.
- Fund managers reinvesting cash ahead of January inflows.
- Lower trading volumes can lead to more exaggerated moves.
For long-term investors, December has historically been a great month to stay invested.
April: Tax Season Optimism
April is another standout performer in the annual cycle.
In fact, historically April has generated average returns of +1.5–2%, which is roughly on par with December.
Possible reasons include:
- Earnings optimism for Q1.
- The start of new contributions to retirement funds and tax-related inflows in the U.S. ahead of the April 15 tax deadline.
- A continuation of a positive momentum from the strong November–March period.
For many investors, April represents the end of the market’s historically strongest six-month period.
Bearish Months: The Worst Times of Year
The weakest-performing months for the stock market are September, August, May, and June.
Overview of each:
September: The Consistent Laggard
September has the dubious distinction of being the worst month of the year for stocks. Since 1928, the S&P 500 has averaged a –0.9% return in September, which is the only month that has a clearly negative average.
Some explanations for this include:
- Fund managers fiscal year-end selling.
- Investors booking summer gains.
- Seasonal geopolitical and economic uncertainty in the fall.
- A lack of strong seasonal catalysts, compared to other months.
While not every September is negative, the long-term averages are quite consistent.
August: Thin Liquidity and Higher Volatility
August is another weak month. The data shows flat to slightly negative average returns but with higher volatility than most other months.
Trading activity is typically lower as many investors and fund managers go on summer vacations. Reduced liquidity means price swings are exaggerated.
Investors are also often anticipating September’s economic releases and central bank meetings.
For active traders, August can feel like walking through a minefield.
May and June: Kicking Off the “Weak Half”
May and June are not outright disasters for the market. But they do kick off what historically has been the weaker half of the year.
Returns for both months are very close to flat on average.
The saying “Sell in May and go away” comes from this pattern, which we will explore next.
The “Sell in May” Effect
The “Sell in May” effect is one of the most well-known and best-documented calendar anomalies.
Since 1950, we can see the following average returns:
- The Dow Jones has averaged about +7% from November through April.
- From May through October, the average is just +2%, with many individual years being negative.
Again, this doesn’t mean investors should all literally sell in May. May–October markets have produced many positive returns, including some years with big gains. But over the decades, the risk-adjusted returns are weaker in the summer and early fall months.
A Month-by-Month Breakdown of S&P 500 Returns
| Month | Avg Return (%) | Win Rate (%) | Notes |
|---|---|---|---|
| January | +1.0 | ~60% | “January Effect” boosts small caps |
| February | +0.1 | ~55% | Mixed results |
| March | +1.0 | ~62% | Q1 optimism |
| April | +1.5 | ~70% | Consistently strong |
| May | +0.2 | ~55% | Start of weaker half |
| June | +0.1 | ~55% | Often flat |
| July | +1.0 | ~60% | Summer rally |
| August | –0.2 | ~48% | Volatile month |
| September | –0.9 | ~44% | Worst month historically |
| October | +0.5 | ~58% | Volatile (crash years), but often rebounds |
| November | +1.6 | ~70% | Strong seasonal trend |
| December | +1.5 | ~75% | Santa Claus rally |
Source: S&P 500 returns since 1950, rounded for clarity
Reasons Behind Bullish and Bearish Months
There are a number of reasons for bullish and bearish months:
Investor Psychology
Optimism around the holidays and the start of the year often boosts November and December, for example. Bearish Psychology often kicks in during September.
Earnings Cycles
Positive Q1 and Q2 earnings reports help fuel April and July. Weak Q3 results often weigh on September.
Tax and Fiscal Planning
April gains are correlated with retirement contributions. September weakness often reflects fiscal year-end selling.
Market Liquidity
The summer trading slowdown in August leads to reduced liquidity and more exaggerated moves.
Historical Crashes
Historical events and crashes have given some months reputations. October has a reputation from 1929, 1987, and 2008, which make investors more cautious even though its average return is slightly positive.
Using Bullish and Bearish Months To Buy Stocks
Seasonality should not be used in isolation.
It’s not the case that, for example, every September is a disaster. Economic and market conditions vary widely from year to year. Some Septembers have produced strong double-digit returns.
Larger factors will often outweigh seasonality, such as interest rates, inflation, earnings, and geopolitics.
Market timing is dangerous. Missing just a handful of the market’s best days can significantly cut long-term returns. Many of those days happen during months like September and October, which tend to be volatile.
That said, we can still use seasonality to our advantage:
- Long-term investors can look for buying opportunities in weak months.
- Traders can be extra careful during historically volatile months.
- Retirement savers can smooth out returns by making regular, consistent contributions regardless of seasonality.
Final Words
Stock market seasonality is real. November, December, and April are the most bullish months for the market, while September and August are the most bearish.
The trick is to use this data for context and expectation-setting.
It is not a trade idea by itself. If September rolls around and stocks drop, you’ll know that it is not unusual. You can avoid the emotional mistake of selling out of fear and see it as a buying opportunity.
If December’s Santa Claus rally happens again this year, you’ll know it’s just history repeating itself.
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