Examining stock market trends in different fundamental economic, monetary and even political environments reveals a multitude of profitable trading opportunities, as well as easily avoided pitfalls.
Today let’s look at the Factor Seasonal Trends for the S&P 500 during recessions compared to expansions.
You can see the S&P 500 trends dramatically different in these two different fundamental environments.
During recessions (shown in RED) the S&P 500 tends to have a brief January rally ending in mid-February. You can see the expected spring rally is flattened out in recessions.
Active traders should expect to see a lot of indicator whipsaws in the traditional spring rally period during recessions as the market trends sideways instead of up.
The S&P then sees a steep decline in late summer through October before a volatile sideways market grays the hairs of investors during the early winter months.
Contrast that to the S&P 500s seasonal trends during business cycle expansions (shown in GREEN).
In expansions January tends to see little upward movement but the Spring Rally strengthens considerably until Mid-July when the index hits a sharp – but short – downtrend. The autumn months remain seasonally weak but that weaknesses shows as flat, sideways trend in expansions rather than the sharp, gut-wrenching downturns in recessions.
Finally the S&P 500 picks up the final two months of the year showing a strong November and December rally.
You can easily see how profitable analyzing the FACTOR seasonal trends — seasonal trends broken down by the differing economic, monetary and political environments – can be. And the Recessions vs. Expansion Factor Seasonal Trend is just one of several we’ve found has a dramatic impact on market trends.