US Stock Indexes: What Is the Next Seasonal Move?

• Recent months have seen both the Dow Jones Industrial Average and S&P 500 extend their long-term uptrend to new all-time highs. 
• Seasonally, both market are approaching a timeframe when they tend to move lower through late March. 
• Seasonal Analysis is best used as a guide than an absolute, with contra-seasonal moves reflective of a change in fundamentals. 

Earlier this week, I saw some chatter on the X-site formerly known as Twitter about the seasonal patterns of US stock indexes. I respect the gentleman who posted, J.C. Parets, “The best 3-month period of the year is officially over (Nov-Jan)…Now welcome to February, what is historically one of the worst months of the entire year. Cheers!” (I always like it when someone tags, Cheers into a message.) A little background on Mr. Parets: He has been bullish US stock indexes for the last 18 months, similar to my timing of turning bullish at the end of October 2022. Also like me, he has had a great deal of fun laughing at the bearish “experts” calling for a market crash over that same timeframe. 

I know I’ve written about the long-term uptrend in US stocks almost every month since the bullish technical patterns were completed, and a couple times I’ve mentioned the seasonality of the indexes. Since we are at the beginning of a new month, this one showing a tendency toward a bearish turn, it’s time to take another look at what 2024 might have in store for the S&P 500  ($INX) and Dow Jones Industrial Average ($DOWI).

Let’s start with the S&P 500. As Mr. Parets mentioned, the index tends to move lower over the next couple months. Does this mean the major (long-term) uptrend that has been in place since October 2022 is over? No. The seasonal pattern is just an indication money tends to flow out of the $INX before returning at the end of March.

Here’s the normal seasonal tendency across different timeframes:

• The 5-year index (red line) shows a 6% decrease from this week’s close through the last weekly close of March
• The 10-year index (blue line) shows a 4% decrease from the third weekly close of February through the end of March
• The 20-year index (purple line) shows a 2% decrease from this week’s close through the last weekly close of March
• The 30-year index (gray line) shows a 2% decrease from this week’s close through the end of March

The bottom line is there is decent consistency in a lower February and March across timeframes.

Leading up to this week:

• The $INX generally shows, across timeframes, a 2% increase during January.
• The 2024 market (green line) has gained 2.5% from the last weekly close of December (4,769.83) through the last full weekly close of January (last Friday’s 4,890.97).

Once the $INX gets through the last weekly close of March it tends to rally through the last weekly close of July:

• The 5-year index shows a gain of 11%
• The 10-year index shows a gain of 9%
• The 20-year index shows a gain of 6%
• The 30-year index shows a gain of 6%

We see similar patterns with the $DOWI, though the timeframe is changed slightly from the third weekly close of February through the next to last weekly close of March: 

• The 5-year index (red line) shows a loss of 6%
• The 10-year index (blue line) shows a loss of 4%
• The 15-year index (purple line) shows a loss of 4%
• The 25-year index (gold line) shows a loss of 3%

Also like the S&P 500, once the $DOWI gets through late March things tend to change quickly. Through the first weekly close of August:

• The 5-year index shows a gain of 8%
• The 10-year index shows a gain of 7%
• The 15-year index shows a gain of 7%
• The 25-year index shows a gain of 5%

A few other notes about these seasonal tendencies:

• Seasonal analysis is a guide, not a hard and fast rule. When we see contra-seasonal moves develop it is usually because something has changed fundamentally. 
• All the different timeframes studied include US presidential elections, with another one on the way in late 2024. 
• Similarly, all the different timeframes studied account for a variety of moves by the US Federal Open Market Committee.

The bottom line is while US stock indexes could see some selling the next couple months, I’m not expecting long-term trends to change. Additionally, while the Chaos of the next US Presidential Election could create a contra-seasonal move, the very nature of a Black Swan event tells us we can’t predict it will happen. 

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