June Seasonals
“Sell in May” – Sell in May does not always hold true, especially in Year 4 of the Presidential Cycle. In this seasonal cycle, April and May are on average two of the worst months in the 48 months (since 1900) to be in the market. In the 4th Year, one should follow the strategy of sell in March, avoiding April and May altogether. Now, as we enter June, what should we expect? Seasonally, there are negative returns in June when looking at the last 21 years of data. BUT if we look at all Junes in Year 4, we see a completely different picture. The summer months are actually positive and one of the best times to be long the market. On Average, June, July and August of Year 4 has been one of the strongest 3 month returns over the 48 months, with August on average the best month to be in the market, especially with close to an 80% chance of being positive. At the end of the day, seasonality studies are just average patterns but they do present some interesting facts which are not to be overlooked. Some additional stats:
The first trading day in June shows the Dow up 18 of the last 23.
The first few days of June historically shows strength followed by mid month strength before a patch of weakness, then end of month strength.
We are currently in an election year and we have experienced only 2 losses during the last 7 months of election years since 1952. Those losses came in 2000 and 2008.
Presidential Election years have their 2nd best performance in the Presidential Cycle behind Year 3. Since 1932, only 5 election years have losses greater than -5%. There are multiple studies pointing at how government manipulates the economy (positively) during the 4th year; everything from increases in Federal Spending, to increases in Social Security to increases in Real Disposable Income is observed.
Sectors
Consumer Discretionary – This sector has its second worst month in June with average returns of -1.46%, however slightly better median returns of -.55%. Relative to the S&P 500, CD has its worst month. Media, Consumer Services and Hotels Restaurants & Leisure have their worst month and are negative for several months ending in September. Specialty Retail is also weak.
Consumer Staples – A weak June through Sept. is expected. Household and Personal Products are extremely weak. Personal & Household Products have their worst median returns and relative performance. Drug Retail has one of the best months of the year.
Energy – Energy ends its best three months of the year which starts in March and going into May. June is the worst month on average and second worst in median terms for Energy. Integrated experience one of their 3 average negative months of the year in June.
Financials – Historically, Financials have their worst relative month in June followed by their best relative month in July, so expect volatility. Banks are one of the weakest groups in this sector. Diversified financials are a place to hide in financials as they have median returns which are positive and flat relative returns.
Industrials – Headwinds pick up over the summer months for this sector and for the groups within this sector. Nowhere to hide from this weakness.
Technology – Slightly negative month on average but has some large draw downs, as the median return is -1.7%. Semis are weak. An area of strength is Software as it has positive average, median and relative returns.
Materials – Materials have their worst median returns in June. Average returns are also negative. Chemicals and Personal Products also have negatives returns in June and the worse median returns as well. Steel begins a weak 4 months stretch.
Utilities – While average returns are negative, this sector outperforms the market in June.
Health Care – This sector is mixed as average returns are positive but median returns are negative. Pharma and Bio are quiet until a strong end of year.
