Tactical Tuesday Sector Report: Seasonality is Bullish into Year-End
This week, we look at the S&P 500’s seasonal pattern over the past 20 years and highlight the year-end monthly returns in the past 5 election years. The chart and table below show monthly simple returns for the S&P 500 by year. The top two rows are the past 20 years and 21 years with YTD returns added in. There are a few observations that stand out to us.
S&P 500 Seasonality 2004-2024: Highlighting Election Year Returns
The high-level takeaways here are that we have past the turbulent August/September period of seasonal weakness, and we are entering a bullish period into year end. The other high level takeaway regarding election years is that year-end has been positive there too with he exception of the Global Financial Crisis which was in full force during 2008 and caused big declines from August through November of that year. 2024 by contrast has seen positive results from August through October. While we generally don’t get concerned by strong performance, that does set up equities for a potential negative surprise based on the general understanding that good news is getting priced in as equities move higher.
This presidential election year is an interesting one since there technically isn’t an incumbent running. New administrations usually enjoy an optimism bump in year one of their terms while year two is typically a consolidation. Incumbents typically start out with less fanfare and end strong. We would expect, given the tension and vitriol that marks politics these days, that equities would take an orderly result with relief regardless of the nominee for the office.
Since elections represent the potential for change, we should keep a close eye on Sectors for any leadership clues. In the past month, Financials have perked up and bull market exposures have had the advantage over historically defensive exposures as can be seen in the Sector performance chart below.
Data sourced from FactSet Research Systems Inc.