Indicator of the Week: When to Buy Stocks During Presidents Day Week

It's Presidents Day next Monday, which means a four-day week for stock trading. This week, I'll look back historically to see how the market has done during this particular holiday week, and then I'll look more generally at short trading weeks.

Presidents Day Week: Going back to 1971 (since that's when Presidents Day officially became the third Monday in February), I looked at how the S&P 500 Index (SPX) performed during the holiday week compared to other weeks. You can see it has historically been a pretty bearish week for the market. The index has averaged a loss for the week and has been negative over half the time. The only positive thing I see in the table is the low standard deviation, which indicates we don't typically see big market moves during the week. Therefore, maybe we can expect a reprieve from the recent volatility.

When does the market go bad during the week? The table below breaks down the returns by day. Friday is the only day that averages a gain, and it's also positive 58% of the time. Tuesday is interesting in that it shows higher volatility than a typical Tuesday. This makes sense since the market absorbs three days of news on the Tuesday following Presidents Day. Going by the table below, if you're looking to buy next week, you might want to wait until Thursday.

Friday Holidays Are Better: Despite the underperformance during the week of Presidents Day, holiday weeks in general have been positive. The first table below summarizes SPX data since 1971 for full five-day weeks and shortened holiday weeks. Short weeks average a gain of 0.33% vs. 0.12% for full weeks. However, there has been a pretty big difference in performance depending on whether the day off was on a Friday or Monday. When markets are closed on Friday, stocks have tended to outperform compared to when markets are closed on a Monday. 

The second table shows more recent data going back to just 2000. The contrast is much greater looking at the more recent data. When the holiday was a Friday, the SPX averaged a gain of 0.96% and was positive 66% of the time. When it was a Monday since 2000, the index averaged a loss and was positive only 51% of the time. I guess we should look forward to the week of Good Friday, the last full week in March. That's the next short week with a Friday holiday.