Is the Market Really Cursed on Mondays?

The current trend of weak Mondays doesn't stand the test of time, but there is one market-timing pattern that's been reliable for decades

by Adam Warner

    Published on Dec 8, 2015 at 9:50 AM

    "Tell me why I don't like Mondays." OK, I'll tell you why. If you're an investor and you want the market to go up, you probably dread the end of the weekend. That's because the market has acted quite poorly on Mondays this year. This, from Bespoke:

    "When you break performance up by weekday, though, some big difference emerge (sic). As is the case again this morning, the market has typically fallen on Mondays this year ... [T]he S&P has averaged a decline of 0.05% on all Mondays in 2015.  Tuesdays have been even worse, with the index falling an average of 0.13%."

    But of course, there's a bright side:

    "If it weren't for Wednesdays and Thursdays, the market would be deep in the red this year. As shown, these are the only two days of the week that have averaged gains, and the gains have been strong as +0.14% and +0.18%, respectively. The bears come out again on Fridays, though, with an average decline of 0.08% seen on the last trading day of the week this year."

    We noted this pattern a couple months back and speculated that it was likely to revert away. That's because there's no particular history of day-of-the-week biases, and no particular reason for the biases this year.

    Yes, perhaps in a fearful market it would make sense to see Friday weakness. But for it to continue, we'd expect a flood of bad Monday news. And we haven't really seen that at all. We have the down Mondays, just not any particularly satisfying explanation.

    In hindsight, it would have been great to have only owned the market from the Monday close to the Thursday open. But the reality is that's just 20/20 hindsight. I wouldn't go game that going forward.

    On the other hand, there is a timing pattern that's worked over a much longer time frame -- that is, the tendency of the markets to do well at the ends and very beginnings of calendar months. I screengrabbed this via Eddy Elfenbein, from this CNBC TradingNation video:

    151208agw

    Basically, all the market gains back to 1932 are from the last four trading days of a calendar month into the first three days of the next month. It reminds me of the old Seasonality System from Norman Fosback. Unlike days of the week, this one has persisted over forever, and it has somewhat of an explanation.

    Funds tend to "spruce up" holdings late in the month, just ahead of releasing their numbers to investors. There's also natural buying at the beginning of calendar months for a variety of reasons.

    As they note in the video, it's impractical to base too much investing strategy on this. If nothing else, the trading costs will eat away into potential gains. But all things being equal, it does pay to let this inform timing. If you're of a mind to go long anyway, maybe it pays to wait until near month's end. Likewise, if you want to sell, perhaps wait until after the first week or so in the month.

    Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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