The Best Months to Invest in Stocks
What Is the Best Month to Invest in Stocks?
Many investors believe equity markets can perform even better in some specific months. Some months are better than others to buy and sell stocks, and you should learn the best months to invest.
Let’s investigate it further based on the study of Schroders – a British asset management firm.
What Does the Data Say?
The analysis is based on 31 years of performance in four major stock indexes:
S&P 500 Index: 500 largest companies which trade on U.S. stock exchanges
MSCI World Index: 1,000 plus large and midsize companies in developed markets
FTSE 100 Index: The top 100 companies on the London Stock Exchange (LSE)
Eurostoxx 50 Index: The top 50 blue-chip stocks in Eurozone
| Rank | Month | Growth Frequency (%) | Difference from Mean (p.p.) | |
| #1 | December | 79.0% | +19.9 | |
| #2 | April | 74.3% | +15.2 | |
| #3 | October | 68.6% | +9.5 | |
| #4 | July | 61.7% | +2.6 | |
| #5 | May | 58.6% | -0.5 | |
| #6 | November | 58.4% | -0.7 | |
| #7 | January | 57.8% | -1.3 | |
| #8 | February | 57.0% | -2.1 | |
| #9 | March | 56.3% | -2.8 | |
| #10 | September | 51.6% | -7.5 | |
| #11 | August | 49.3% | -9.8 | |
| #12 | June | 36.7% | -22.4 | |
| Average | 59.1% | n/a |
Between 1987 and 2018, the percentages indicate the historical incidence of such indexes advancing in each month. Months are listed in descending order from best to worst.
There is a clear difference in growth frequency, and it can help us be aware of the best and worst months for the stock market.
The Strong Months
December has historically been the strongest month to invest in stocks with respect to growth frequency. This corresponds to the “Santa Claus Rally”. Santa Claus Rally claims that stock prices rally during the Christmas holidays.
The holiday season, according to one idea, has a psychological influence on investors, causing them to buy rather than sell. Also, we might assume that a large number of institutional investors are on holiday at this time. This might offer bullish ordinary investors more control over the market’s movement.
April is the second-strongest month for the stock market, and it’s considered to be a strong month for the market. Some people believe that many investors receive their tax refunds in April and that this is why they often buy stocks around that time. The increase in cash flow causes prices to increase.
Speaking of higher prices, we are able to see this slant from the point of view of returns. Centering on the S&P 500 and looking back to 1928, April has created a normal return of 0.88%. This is often well over the all-month normal of 0.47%.
The Weak Months
The top three worst months to buy stocks, according to this analysis, are June, August, and September. Is it a coincidence that they’re all in the summer?
One hypothesis for the season’s relative shortcoming is that institutional dealers are on holidays, like December. Without the holiday, in any case, the market is less foamy, and the diminished liquidity leads to an expanded chance.
This data clearly shows a convincing pattern. “Sell in May and go away” owes its popularity to these results.
Key Notes for Best Months to Invest in Stocks
Investors should keep in mind that this data is based on older years’ results and should not be utilized to make choices for future times within the stock market.
Irregularities like the COVID-19 pandemic in 2020 can have a significant effect on the world and the market as well. Stock market performance in these times may go astray enormously from their historical averages seen in the charts.
In any case, analyzing these historical results can still be valuable to financial specialists who are attempting to understand market movements to understand the best months to invest.
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