glass globe ball on paper

Insights and Strategies

Navigating Year-End Seasonality

Stock market seasonality refers to the patterns in price movements that occur predictably at certain times of the year. Towards the end of the calendar year, well-known trends, such as tax-loss-selling and the Santa Claus rally, always draw public attention. These trends can act as headwinds or tailwinds, or just add noise to an already uncertain market. Looking at historical data can give us clues about why these patterns occur and what they might mean in the current environment.

The graphs below illustrate the average monthly returns of the S&P/TSX Composite (TSX) and S&P 500 (SPX) over the last 50 years. The blue market return bars, reveal that on average, September is the most negative month in both Canada and the U.S. This seasonality is influenced, in part, by tax loss selling. Although tax loss selling can extend until December 27, money managers, depending on the fiscal year-end of their funds, tend to do these transactions starting as early as September and are finished by mid- December. Next is the "October effect”, which suggests that stocks tend to decline during this month, as with the famous 1929 and 1987 market crashes. The 50-year historical data however indicates that this phenomenon is more psychological than factual. Under normal conditions, seasonality tends to improve from this point onward, transitioning from a headwind to a tailwind. Then, as the year draws to completion, historical data suggests above-average returns for both November and December.

Historical Monthly Return Trends S&P/TSX Composite [Top]; S&P 500 [Bottom]

View full PDF

Market Commentary