This could be a rough week for the stock market.
Then again… Maybe not. The market has had plenty of reasons recently to have a “rough week.”
And, so far, nothing has happened. The S&P 500 closed Friday within spitting distance of making another new all-time high.
The delta variant, rising inflation expectations, the threat of the Fed tapering, hurricanes, and increased political agitation have had almost no effect… The stock market just keeps pressing higher.
Today, though, investors are facing an event that could cause a correction…
You’ve no doubt heard the phrase, “sell in May and go away.”
Well, there’s another old adage on Wall Street that goes, “Sell on Rosh Hashanah and buy on Yom Kippur.” The saying highlights the seasonal weakness that typically occurs between those two Jewish holidays.
No, stocks don’t always decline during this time of year… But, it happens often enough that there’s a saying about it.
Tomorrow marks the start of Rosh Hashanah – the Jewish New Year. It also kicks off a 10-day period known as the Days of Awe. This is a period of intense reflection for people of Jewish faith, which ends on Yom Kippur (the Day of Atonement).
The adage originated many decades ago when it was common practice for Jewish investors to sell their stocks on Rosh Hashanah so they could concentrate on their prayers without the distraction of having to worry about the stock market. They would then buy back their positions after Yom Kippur – when they could concentrate on the stock market again.
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Nowadays, any weakness in the stock market during this time is likely more a matter of coincidence than it is the result of millions of Jewish investors dumping their portfolio holdings.
But stocks still tend to decline during this period. For example, last year the S&P 500 dropped 150 points – about 4% – during this period.
Going all the way back to 1915, the Dow Jones Industrial Average has declined an average of 0.62% between Rosh Hashanah and Yom Kippur. That is statistically significant weakness for a 10-day period.
The declines have been much worse during periods of economic uncertainty – when the market was already struggling. For example, in 2008, the S&P 500 dropped 18% during the Days of Awe.
Of course, the market is certainly not struggling today.
But, we’re coming into this period in an overbought condition, with multiple negative divergences among many technical indicators, and with investor sentiment (a contrary indicator) quite optimistic.
In other words, the table is set for a strong decline. If it’s going to happen, it might very well happen during this seasonally weak time of the year.
Best regards and good trading,
Jeff Clark
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Reader Mailbag
Do you follow any market adages like “sell in May and go away” or do you stay away from it?
Let us know your thoughts – and any questions you have – at [email protected].