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Seasons of Change and Market Returns

Written by: Benjamin Bimson CIMA®, CMT® / CIO, Trek Financial

For those looking for something to be thankful for this season, seasonality of market returns tends to be highest between November and April. Admittedly, this can seem like a trite thing to say on the back of multiple new market highs. However, statistically, the time of year can positively impact market returns for investors. Risks are always present and shouldn’t be ignored, but absent evidence of changing trends, fighting trend can be a losing proposition.

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In examining seasonality of market returns, we can look at historical returns on a monthly basis. There are no guarantees that we experience the average, but it can be informative when looking at current and proposed strategies. Based upon statistics gathered by Ned Davis Research, positive returns have been measured from November-April on a calendar basis often. The strongest returns tend to come in the beginning of each calendar year, but the numbers support some optimism. Here is the statistics and how 2021 has shaped up relative to historical averages.

While seasonality is certainly a tailwind to market returns as we enter the holiday season, many times the financial media focuses on risks and troubling estimations. One of the elephants in the room is inflation. Inflation is higher than it has been in 30 years according to the latest MSNBC headlines.1 There have been many pontifications offered by pundits as to how long it will last and “what will happen next.” Even Twitter’s CEO Jack Dorsey has weighed in on the topic with dire warnings of hyperinflation.2 Whether or not that comes to fruition, there are some strange things happening that may or may not fully explain the current inflation and future inflation.

One of the items that is causing a bit of concern is the supply shortages combined with high consumer demand. This is certainly inflationary. However, at some point, either the pain of inflation and political maneuvering will elevate shipping and transportation bottlenecks, or prices will increase to a level where consumers look for alternatives. One hypothetical way this could happen is if there were to be a temporary pause on legislation calling for semi engines over 11 years old to be retired. Another could be alternative ports of entry being used by routing shipping to other parts of the United States from the crowded California ports. If prices get high enough, consumers could hold off purchasing durable goods or US production could increase if pricing on imported goods were too high for consumers to be willing to pay for them.

No matter what solutions are eventually adopted, supply shortages have tended to be transitory in nature. This does not immediately solve high inflation alone, but it is a compelling component and one that we can examine with data. Retail sales have remained high during the pandemic. In fact, it has been so high, that it has outpaced industrial production.

There are multiple things being pointed at to create this perfect storm. The extraordinary direct payments in the US have made for a challenging employment landscape for employers. Supply chain disruption has made some raw materials and inputs necessary to produce goods for sale difficult to obtain and people in general have been changing the way that they work and live during COVID restrictions, lockdown, and social movements. Online ordering has gone through the roof! Here is a strange chart that shows the disconnect between very high retail sales and industrial production that has struggled to keep up.

If you are bullish on investments, there are reasons to rejoice. If you are bearish, there can always be issues that reinforce that standpoint. Data tends to outperform being stubbornly in camp. We will continue to monitor the data and attempt to avoid large mistakes. Continuing to remain vigilant is imperative but understanding what all the data tells us is a winning strategy.

As we head into the holiday season, let us be among the first to thank you all for your friendship, trust, and business. We truly are thankful for your support and friendship.


Sources

  1. CNBC.com, November 1, 2021.
  2. CNBC.com, October 29, 2021.

Investment Advisory Services offered through Trek Capital Management LLC., an (SEC) Registered Investment Adviser.

Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 21-113

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