N179)the Best months to buy stocks

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In this video, we will talk about the Best months to buy stocks

The Best Months for Stock Market Gains

Many investors believe that equity markets perform better during certain times of the year.

Is there any truth to these claims, or is it superstitious nonsense? This infographic uses data gathered by Schroders, a British asset management firm, to investigate.

What the Data Says

This analysis is based on 31 years of performance across four major stock indexes:

FTSE 100: An index of the top 100 companies on the London Stock Exchange (LSE)

MSCI World: An index of over 1,000 large and mid-cap companies within developed markets

S&P 500: An index of the 500 largest companies that trade on U.S. stock exchanges

Eurostoxx 50: An index of the top 50 blue-chip stocks within the Eurozone region

The percentages in the following table represent the historical frequency of these indexes rising in a given month, between the years 1987 and 2018. Months are ordered from best to worst, in descending order.

The Strong Months

In terms of frequency of growth, December has historically been the best month to own stocks. This lines up with a phenomenon known as the “Santa Claus Rally”, which suggests that equity markets rally over Christmas.

One theory is that the holiday season has a psychological effect on investors, driving them to buy rather than sell. We can also hypothesize that many institutional investors are on vacation during this time. This could give bullish retail investors more sway over the direction of the market.

The second-best month was April, which is commonly regarded as a strong month for the stock market. One theory is that many investors receive their tax refunds in April, which they then use to buy stocks. The resulting influx of cash pushes prices higher.

Speaking of higher prices, we can also look at this trend from the perspective of returns. Focusing on the S&P 500, and looking back to 1928, April has generated an average return of 0.88%. This is well above the all-month average of 0.47%.

The Weak Months

The three worst months to own stocks, according to this analysis, are June, August, and September. Is it a coincidence that they’re all in the summer?

One theory for the season’s relative weakness is that institutional traders are on vacation, similar to December. Without the holiday cheer, however, the market is less frothy and the reduced liquidity leads to increased risk.

Whether you believe this or not, the data does show a convincing pattern. It’s for this reason that the phrase “sell in May and go away” has become popularized.

Key Takeaways

Investors should remember that this data is based on historical results, and should not be used to make forward-looking decisions in the stock market.

Anomalies like the COVID-19 pandemic in 2020 can have a profound impact on the world, and the market as a whole. Stock market performance during these times may deviate greatly from their historical averages seen above.

Regardless, this analysis can still be useful to investors who are trying to understand market movements. For example, if stocks rise in December without any clear catalyst, it could be the famed Santa Claus Rally at work.

Credit Suisse, Switzerland’s second-biggest lender, has now been rescued by its rival UBS in an emergency deal. But the crisis has sent shock-waves through the stock markets as investors worry that it could have a knock-on effect on other businesses.

Markets around the world also remain in turmoil due to rising inflation and the ongoing threat of recession. So is now a bad time to buy shares, or are there opportunities to be had while others are fearful?

Is now a good time to buy shares?

We don’t know what the future holds, but we can certainly take a look at the stock market to see if there are any trends that might help us make an informed decision on whether now is a good time to invest.

Some seasoned investors would say it’s good to buy at a time when stock markets are low. The idea is, you get more for your money and the value of your investments will rise when markets pick up again.

As with any investment, however, your capital is at risk. The value of your investments can go down as well as up and you may not get back all the money you put in.

Let’s look at the FTSE 100, which measures the performance of the 100 largest listed companies in the UK:

The FTSE 100 fell almost 7% in the first three weeks of March as investors panicked after the near-collapse of Switzerland’s second-biggest lender, Credit Suisse. The bank is a crucial part of the global financial system so regulators orchestrated a rescue deal to try to calm investors

But despite the FTSE’s downward trajectory over the past few weeks, it has been steadily climbing since the outbreak of the coronavirus pandemic in 2020. It is now trading at its pre-pandemic levels. It had its best day on record after February’s interest rate decision.

The index is now trading at around 7,412 points

Many big companies are continuing to grow and also appear to be coping with the cost of living crisis relatively well. So if growth continues, then now would be a good time to buy shares.

But again there’s no way of knowing how a company or the stock market as a whole will perform over the coming months or years. We can’t know whether its growth trajectory will continue. 

Others would say you should never try to time the stock market and that the best way to get a positive return is to invest for the long term. This gives your investment a chance to ride out stock market ups and downs and eventually, you would hope to sell for a profit.

If you’re new to investing, you might want to read our beginners’ guide to investing first.

Is the stock market falling and why?

It has been a turbulent time for stock markets this month following the failure of a number of banks, including American lenders Silicon Valley Bank (SVB), Signature, and Silvergate.

Credit Suisse, Switzerland’s second-biggest lender and a huge player in the global markets, entered danger territory in March before it was rescued by its rival UBS.

Investors have been worried this could have a domino effect on other banks.

Before March the FTSE had been recovering from its falls caused by the mini-budget on 23 September.

The tax-cutting measures had been heavily criticized by the International Monetary Fund as the government would need to borrow more to fund them. There were concerns that the measures could further fuel the cost-of-living crisis.

The Bank of England sought to calm the bond markets by buying government debt to prevent the issues in the gilt market. We explain how this affected pension investments.

While the UK has avoided a recession so far, the Bank of England still forecasts a recession in 2023, which would affect investor confidence in British business. The FTSE 100, an index that measures the performance of the largest companies in the UK, has been very volatile with huge swings in prices.

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