Buy in November and Go Away in May

The Chart below proves that going back to 1950 using the S&P 500, historically the strongest quarter is the 4th quarter.

Global Demographics Group - Wealth Management - S&P 500 Historic Returns

So when you “connect the dots” with what happened last week, and President Trump announcing the Promised Tax cuts that we have all been waiting for we could see a very strong rally about to start.

Lets talk about the Tax cuts first

The effect will be massive because there has never been a Tax overhaul like this in three decades with the main cut to corporations. In Canada our Corporate Tax is 15% and this has been attracting U.S. corporations to put head offices here as well as new plants. In the U.S it is 25%. So when they drop the rates in the U.S. to 15% the feeling is you will have repatriation of U.S companies not only from Canada but also Mexico and China and anywhere else in the world. Bringing back jobs to the U.S. and a larger base to collect Taxes from. The U.S economy is already doing well despite Trump and this will give it a huge boost once it passes Congress.

Now back to the chart

There is an old saying in the Western World and Europe when it comes to investing. It’s the traditional way markets react in a Domestic market, not a Global one. That saying is “Buy in November and go away in May” If you look at the chart above that is what you see has happened to the S&P 500 over the last 67 years .

Here is how it happens: starting in May the market peaks our NASDAQ fund reaching 19% for the first 5 months. We were all excited with the Health care issue being Trumps next play and Tax cuts to come, it looked like a summer rally happening too. But then he started to Twitter. The NASDAQ dropped to a 12% gain.

So the markets went back to the traditional way of investing. It’s summer time, time to put investing aside and concentrate on living.

Pensions, Mutual funds and Corporations go on Vacation starting in June and when the Traders follow suit, you now have fewer investors investing and therefore volumes are lower and volatility is much higher. This scares the hell out of small investors that let emotion drive their investments and mistakes happen.

As September arrives, traders and the big three Pension Funds ,Mutual Funds and Corporation return to the game. If the market has not already dropped in August then a bigger correction will occur in SEPT/OCT because it is at this time the the Big Three look at their portfolios and sell the losers to raise cash for the… “Buy in November go away in May strategy”.

So as the market heads in to November the Big Three have all this cash to invest because they knew when they sold those losers that the general public, led by emotion, sell good stock as well as the bad. There will be a lot of good stocks to buy because of the small investors panic. That’s what WARREN BUFFETT does all the time.

Next comes the Santa Clause rally that drives the stock up even more as the small investors jump in to catch the ride. Typically this then brings the next quarter in line and you have the January effect. Everyone thinking positive again as they buy their RRSP’s to save on Taxes. Money comes in so fast at this time that it’s still being invested all the way up to… you guessed… in MAY.

And now you know!