Another year another datapoint… Regular readers will be familiar with the first chart which shows the average daily returns for the S&P 500 across the year against the average level of the VIX across the year. This stockmarket seasonality map has been updated to include the 2017 data and the same conclusions and cautions hold. In this article we review this chart and explore seasonality patterns across a few key asset classes.

The first thing to note about seasonality however is that it is imperfect, and can break down at times. That’s why I often say that seasonality should probably be one of the final factors you look at. So for example if there was a compelling valuation case, and variables like sentiment, monetary policy etc were all bullish and the seasonal tendency was also positive it would be a useful confirming indicator or something to add to the case from a tactical standpoint. Other than that it can also be useful information from a risk management standpoint e.g. if you are long an asset into a seasonally weak period.

Anyway, looking at the charts there are some interesting and for the most part intuitive seasonal tendencies across the asset classes looked at (S&P500, VIX, US dollar, Treasuries, and Gold). In the immediate term, the first quarter of the year tends to see stronger stock prices, a largely stable VIX, weaker treasuries and stronger gold prices and a stronger US dollar. Time will tell if these patterns repeat this year!

The main takeaways and rules of thumb on cross asset seasonality are:

-The S&P500 tends to do well early and later in the year and worst from Jul-Oct, and the chart shows the VIX (implied volatility) more or less does the opposite.

-Traditionally known as defensive assets, gold and treasuries seasonally perform well during the period where stocks perform the worst (which lines up with that intuition/rule of thumb).

-The US dollar index tends to do well in the first quarter, and bonds tend to do poorly.