What is Seasonality?
Seasonality in the markets refers to the tendency of markets to have predictable trends during certain times of the year.
You may have heard of the ‘Santa Rally’; this is a seasonality trend. Phrases like ‘sell in May and go away’ are also a reference to seasonality trends. For those also interested in intraday flow and market tide for intraday trends, you can read more about that as well in this article.
Seasonality data comes in many shapes and sizes.
Seasonality Chart Breakdowns
Here, we have the full Seasonality page for the S&P 500 ETF, $SPY; so let’s break down each chart in turn.
The first chart on a stock’s seasonality page is the raw seasonality; what was the gain or loss, month over month, year over year experienced by the stock’s price. This offers a great quick snapshot of average moves that may be expected during each month of the year. For example, $SPY historically has very strong performance in February, April, July, and November, but poorer performance in January, August, and September.
The next chart displays the distribution of daily percent changes for the ticker. You can narrow this down to any month(s) you’d like displayed. You can even cut it down to specific days of the week. For example, here is the distribution of $SPY daily percent changes for every Monday, Wednesday, and Friday in the months of February and August for the last 10 years.
The next chart shows the profitability of $100 invested at the beginning of the year. This PnL is mapped against the average growth per year of $100 invested, or the median; whichever you prefer to compare the current year to.
Next we have the Average returns for each month in the last 15 years. This not allows you to see the Average and Median returns by month, but can also display the percentage of days where the ticker you’re viewing (in this case, $SPY) closed the trading day in positive PnL. For $SPY for example, historically July and November have experienced the most green close days at 86.67%, whereas September has experienced the least green closes at only 46.67% of days closing green.
Finally, the Distribution of Daily Returns over the last 10 years. This shows the median, as well as the mean average distribution (a metric that calculates the average of the absolute differences between each data point and the mean of a dataset), of the ticker. It also highlights “Today”, and displays which bucket of deviation the current day’s price movement falls under.
