Price action before Memorial Day tends to set the tone for the rest of the year
Memorial Day is next week, a time we remember those who have given their lives while serving in the armed forces. For many, it means parades and cookouts over the weekend -- with social distancing of course -- and the unofficial start of summer. For the stock market, it means a shortened four-day trading week. This week I’ll show you some general stock market data based on the holiday week.
Bullish History, But Not Lately
Memorial Day officially became the last Monday in May starting in 1971. Since then, the week of Memorial Day has tended to be bullish for the S&P 500 Index (SPX). The average return beats the typical weekly return (0.47% vs. 0.16%), with a higher percentage of positive returns as well (about 61% vs. 56%). Looking at the most recent ten years, however, the holiday week has been subpar to say the least. Since 2010 the S&P 500 has averaged a loss of almost 1% per week, with just four of the ten returns positive during Memorial Day week.
So Which Day is Best?
Below, I break down Memorial Day week by each day starting with the Friday before the long weekend, which has been slightly better than average. The main reason for the long-term outperformance during the holiday week has been because of consistent gains at the end of the week. Tuesday has been positive less than half the time, although when it has been positive, it has been a significant gain. Therefore, despite the low percentage of positive returns, the average return for the first day of Memorial Day week is 0.17%, which is better than the typical Tuesday. Looking at other days of the week, Wednesday through Friday, they are all positive around 60% of the time-- better than the typical returns. Thursday stands out as having been the best day of Memorial Day week when going by the average return.
Bad Omen for Rest of Year?
So far, this year the S&P 500 is down over 8%. The table below looks at S&P 500 returns for the rest of the year after Memorial Day week, depending on whether the market was up or down heading into said week. It seems price action before Memorial Day sets the tone for the rest of the year. If the index was up, then the rest of the year was positive about 73% of the time, averaging a return of 5.82%. If stocks were down on the year, then after Memorial Day the S&P 500 averaged a 1.67% loss, with just 40% of the returns positive. Hopefully, this trend gets bucked in 2020.
