Jeff Clark's Market Minute

This Could Derail the Stock Market

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 at least, nothing has happened. The S&P 500 is still within spitting distance of making a new all-time high.

A looming debt limit crisis, the trade war with China, the threat of impeaching the president, hurricanes, and increased agitation in the Middle East have had almost no effect. The stock market just keeps clinging to its high.

Today, though, investors are facing the one event that could finally derail the stock market…

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It’s the Jewish New Year.

There’s an 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. It’s similar to the “sell in May and go away” maxim we hear every year.

No, stocks don’t always decline during this time of year… But it happens often enough that there’s a saying about it.

Yesterday marked 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.

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.

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. So, we’re probably not set up for a dramatic decline this year.

Besides, the market has shrugged off far more serious concerns than “seasonal weakness.”

Then again… stock market clichés exist for a reason. A few weeks ago it seemed that just about everyone was looking for a stock market correction of about 3-5%. 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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– Lance

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