October 31 marks a holiday when we decorate our homes and yards with dancing skeletons, flying bats, eerie ghosts and witches riding on brooms. We revel in frightening others, but Halloween is anything but scary for stock market investors. In fact, the last day of October marks the onset of a historically bullish six-month period for the S&P 500 index.
Going all the way back to 1950 the S&P 500 benchmark has climbed 6.6%, on average, between November and April compared with an average 0.8% increase from May to October. Traders call this seasonal tendency the “Halloween Effect”. The saying “Sell in May and go away” refers to this same pattern. And the upward bias isn’t unique to Wall Street: researchers determined that the propensity for a stock market to produce the bulk of its gains in the six months post-Halloween exists in 81 out 108 countries.
Investors interested in taking advantage of the Halloween Effect and buying an investment vehicle that tracks the S&P 500 have many options. One of the largest and most widely-traded is the SPDR S&P 500 (SPY), a $159 billion exchange-traded fund. Remember to sell on May 1st.
As always, there are no guarantees — the Halloween Effect isn’t perfect. The oil embargo of 1973-74, the dot-com bust of 2000-01 and the financial meltdown of 2007-2009 are a few periods when the S&P 500 was very weak.
(The pumpkin carving above is courtesy of my son, Peter, a huge fan of the AMC series, “Breaking Bad”. )
♦ Please note that my readings will change without notice, so please don’t buy or sell solely based on anything you read in this blog. ♦