It may be the season of glowing pumpkins and flying witches, but investors should not be left feeling spellbound by a phenomenon known as the Halloween Effect. Let’s explore the facts and figures to avoid being bewitched by this seasonal effect, deciphering whether the Halloween effect is a terrifying trick, or a timely treat.
Behind the magic
The Halloween Effect posits that the stock market tends to deliver stronger returns from November through April – or from Halloween through to May Day – compared to the summer months.
So, does data support this? Research indicates that the period from November to April has historically outperformed the May to October period by a significant margin. For example, a study found that over the last two decades, the MSCI All Country World Index’s average return from November to April was approximately 7.5%, compared to just 0.5% from May to October.
While the Halloween Effect might offer tantalising short-term opportunities, it is the disciplined, long-term approach that builds sustainable wealth.
Why does it happen: The ghost story
There are a number of theories as to why the Halloween Effect exists. From investors being more active and optimistic during the winter months due to the holiday season and year-end bonuses, to the notion that summer vacations lead to lower market activity and higher volatility. Despite these theories, no one can pinpoint a definitive cause, making the Halloween Effect as enigmatic as a ghost story.
Long term investment: the real treat
While these numbers are compelling, they should be approached with caution. The Halloween Effect is based on market timing, and timing the market is notoriously difficult. Even with historical data on your side, the market’s inherent unpredictability means that short-term gains are never guaranteed.
At Quilter Cheviot, we believe that the true power of investing lies in a long-term perspective. While the Halloween Effect might offer tantalising short-term opportunities, it is the disciplined, long-term approach that builds sustainable wealth. Market anomalies like the Halloween Effect can be fascinating, but they should not distract from the fundamental principles of investing.
A long-term strategy allows investors to ride out market volatility, benefit from compound growth, and align investments with financial goals. It’s about staying the course, even when the market’s ghosts and goblins try to spook you into making hasty decisions.
How we can help
Navigating the complexities of the market requires expertise and a steady hand. At Quilter Cheviot, our investment managers are dedicated to helping you achieve your financial goals through tailored investment strategies that prioritise long-term growth. We understand the allure of market anomalies, but we also know the importance of a well-diversified portfolio and a disciplined investment approach.
Whether you’re intrigued by the Halloween Effect or committed to a long-term strategy, our team is here to provide the insights and support you need. Let us help you unmask the mysteries of the market and guide you towards a secure financial future.
Sources:
1: Investopedia - Halloween Strategy: What It Means, How It Works
2: Wall Street Oasis - Halloween Strategy Overview 3:
Quantified Strategies - The Halloween Effect in Trading
What are Sell in May and Go Away and The Halloween Effect? - IG UK
Halloween Strategy - Overview, How It Works, & Calendar Anomalies (corporatefinanceinstitute.com)
Is There Real Magic In The Market? Unmasking The Halloween Effect | Bankrate
The Trick Behind the Halloween Strategy - OpenMarkets (cmegroup.com)
The Halloween Effect – What Finance Brands Should Know - Contentworks
The Halloween Effect: Why You Should Get Ready To Buy Equities In November (forbes.com)