Tuesday, May 21, 2013

Life is a Beach or Betting on a Summer Rally

Mark Hulbert, MarketWatch, writes: “….How did investors and advisers come to believe in a Summer Rally in the first place? I have no idea, but it might have had something to do with the extraordinary rally that occurred in the summer of 1932, in the depths of the Great Depression. The Dow nearly doubled during that year’s summer’s rally.  Without outlier years like that one, the Summer Rally loses even more statistical support.

“Since 1940, for example, the average Dow gain from the end of May to its highest close over the next three months is just 4.0%. Seven of the other 11 months of the calendar sport higher average “rallies” than this.

“Of course, the stock market will rally at some point this summer. But its odds of doing so are not any greater than at any other time of the year. After all, every season of the year sees the stock market at times going up — just as it also witnesses periods of market decline. The widespread belief in a Summer Rally is a good illustration of the tricks our minds can play on us…


No comments:

Post a Comment