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The middle of the year might be a time for investors to review and revise their portfolio allocations. It includes a turn of the month and the 4th of July celebration in the U.S. Is there a reliable pattern to daily stock market returns at mid-year? To check, we analyze the historical behavior of the S&P 500 index from ten trading days before to ten trading days after the June/July turn of the month. Using daily closing levels of the index for 1950-2007 (58 observations), we find that...
The following chart shows average daily S&P 500 index returns from ten trading days before (-10 to -1) to ten trading days after (1 to 10) the June/July turn of the month during 1950-2007, with one standard deviation error ranges. The average daily return for all trading days over this period is 0.04%. Results suggest weakness about a week before the turn of the month and strength around the turn of the month through the holiday, although the abnormal returns are small compared to the standard deviations.
To check stability of abnormalities, we look at two recent subsamples.
The following chart shows the average daily S&P 500 index returns from ten trading days before to ten trading days after the June/July turn of the month since 1990 (18 observations) and since 2000 (eight observations). This chart shows no error ranges and uses a finer vertical scale than the preceding chart. While results for the recent (small) subsamples are choppy, they do not seriously contradict the above findings.
In summary, best guess is U.S. stock market weakness a week before the mid-year point and strength around the turn of the month through the 4th of July holiday.
For related research, see Blog Synthesis: Calendar Effects and the Trading Calendar.
