The stock market is a complex entity, and there are many things that can happen which are difficult to predict or fathom. One such thing is stock market seasonality, which tends to be more difficult to predict during bear markets. Bear markets are defined by their volatility, and making money during a bear market is difficult. Past bear markets, such as the year 2000 and the 2007-2009 financial crisis, were marked by extreme volatility and were difficult to trade.
Seasonality is a pattern that can be observed in the stock market. For the S&P 500, it is typically hard to predict how equities will perform between February and March, with January-March being choppy with big rallies, sell-offs, or markets that go nowhere. The second half of March and April are typically good months, while May and June are consolidation months, and July and August are generally non-eventful. September and October are historically difficult and choppy, and November and December have big risk moves at year-end.
During a bear market, stock market seasonality is more prone to emotions, with more news flow that can surprise people. However, one of the more reliable patterns is the Q4 rally, which typically rallies into the first half of December. In 2022, this pattern was observed when the market bottomed in October and rallied into mid-December, up 17%. It is important to use multiple analysis points at any given point in the cycle, rather than relying on single-factor analysis.
Bear markets are tough to trade because different players come in non-traditionally, and the retail community, given more of a voice with social media, can impact the market in unexpected ways. However, despite ongoing bear market conditions, the bull spirit of the retail community persists, with very few people being truly concerned.
What You’ll Learn:
- Why bear markets tend to last, and how they play out in the second half.
- Why it’s so hard to make money in a bear market.
- Why the Q4 rally tends to be more reliable and how to capitalize on it.
- Why you shouldn’t use single-factor analysis.
Favorite Quote:
“The bear market is not over, but the bull spirit of the retail community is certainly not done yet either.” -Serge Berger
