It’s (Still) Scary How Well the Halloween Indicator Keeps Working… By, D. R. Barton, Jr.

Barton TT1

Before you start wondering if the VTI editorial team has lost their wits, just jamming any note about Halloween into this week’s newsletter, please know that I was informed that Ron William had written an article about the Halloween Effect. And I wrote an additional tag-back to that article anyway. It’s not like there’s nothing else to write about (see my P.S. below) but it’s that the “Six Best Months” phenomenon is so darn intriguing.

Back in 2008, I wrote that many people dismissed this beguilingly simple seasonal indicator because the Six Best Months period of November 2007 to April 2008 was down -5.5%. But when the “Sell in May and Go Away” period of May to October later that year turned in a -30.5% cliff dive, people once again understood the term “relative performance”…

And that brings us to the Halloween Indicator. And yeah, it’s still good, as Ron has pointed out above.

The Halloween Indicator: It Just Keeps Working

Ron showed an overall chart of “Best Six Months” performance above. And in a more granular look, we can see that the seasonal indicator, that has worked for 330 years (not a typo), hasn’t been getting weaker. Jacobsen and Zhang have shown that the outperformance of the six best months vs the six worst has grown stronger in the most recent decades. The graph below shows the size of the Halloween Effect (the difference between six-month returns November-April and May-October) for 31 ten-year sub-periods, from 109 pooled countries over the period of 1693-2011:

1124 DR Chart1

Most of the seasonal effects I have myth-busted over the years in this space show a dwindling effectiveness as more people find out about them and try to exploit them earlier, etc. But that’s just not the case for the Halloween Effect. Like a fine wine, it seems to be getting better with age.

Some people have written, with a shorter-term data set, that the Six Best Months has worked over the past few years but note that the period between May and October has also been strong.

I’ve crunched the new numbers for you since late 2009 and the Halloween indicator is still holding true. The Six Worst Months vastly underperformed in the years shown below (all performance numbers are percentages and represent May – October vs. November – April):

  • 2010 (-0.3 vs. +4.4)
  • 2011 (-8.1 vs. +15.2)
  • 2012 (+1.0 vs. +11.5)
  • 2013 (+10.0 vs. +13.1)
  • 2014 (+7.1 vs. +7.3)
  • 2015 (-0.3 vs. +3.3)
  • 2017 (+8.0 vs. +12.1)
  • 2018 (+2.4 vs. +2.8)
  • 2019 (+3.1 vs. +8.6)
  • 2021 (+10.1 vs. +26.4)

10 out of 12 years we see outperformance, with only 2016 & 2020 missing the mark. The Halloween Effect is a seasonal trend that keeps on working.

I always love to hear your thoughts and feedback. Just send an email to drbarton “at” vantharp.com.

Great Trading and God bless you,

D. R.

P.S. While there’s always something to write about, this week we have earnings from Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), and Apple (AAPL) at one of the most critical times in recent market memory. And so far, with MSFT, GOOGL and META all getting slammed after their earnings announcements on Tuesday and Wednesday, the Mega Tech quintet is 0 for 3.

AMZN and APPL are the last hopes for some Big Tech earnings magic to buoy the markets when they announce their quarterly results after the market closes tomorrow (Thursday).

Handling these wild swings driven by earnings or just by daily market noise will be the subject of an upcoming article…

 

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