Investing in the stock market can seem complicated, but one of the simplest and most effective strategies is to buy an ETF that tracks the S&P 500. ETFs like the SPDR S&P 500 ETF allow investors to own shares in 500 of the largest U.S. companies with just one trading transaction. This diversified approach spreads risk and increases the potential for long-term growth. What's better than an S&P 500 ETF is knowing the seasonal window, which shows that the ETF has risen 100% for the past 15 years.
Over time, it's been difficult for individual traders and managed money to outperform the S&P 500 consistently. Some get lucky and succeed at this for a year, then struggle to do it again before a losing year appears. By selecting from a wide range of stocks and regularly updating its holdings (removing the underperformers and adding the more substantial companies), the S&P 500 provides a powerful tool for consistent market exposure. Individual traders and managed money are trying to beat the market by buying individual stocks and lack diversification.
In a recent article on Blackrock.com, they highlighted the power of patience with this comment, "Since 1974, the stock market has endured a presidential resignation, the collapse of the "Nifty Fifty" blue-chip stocks, raging stagflation, the 1987 stock market crash, the rise and bursting of the dot-com bubble, three wars in the Middle East, the GFC and COVID-19 pandemic. And over those 50 years, $5,000 invested in the S&P 500 Index would have grown to be worth $1.3 million today. Volatility is inevitable. Still, for long-term investors, patience is a virtue."
The following chart illustrates the technical picture of the S&P 500 going back to the 1980s. It shows that the high created by any market correction was eventually broken as prices resumed the uptrend. At times, the market does not always reflect the actual economy. However, with the global following of the S&P 500, money continues to pour in. If I didn't know better, I would think investors treat these indexes like a money market, parking money in them until the next hot market.
Source: Barchart.com
The following daily chart might have some investors asking if they should buy at the high levels at which the S&P 500 is currently trading.
Source: Barchart
Timing the market is often a difficult task. Investors who wait for market pullbacks to purchase more shares frequently keep waiting as prices soar higher without much of a correction. Then, there is a lack of confidence when buying at elevated levels. But what if we see a historical pattern that shows the S&P 500 has rallied during a particular date for 100% of the past 15 years? Would that give you a reason to apply some due diligence for the opportunity to see it happen again this year?
Seasonal Pattern
Moore Research Center, Inc. (MRCI) has extensively studied historical data and found reliable seasonal windows when markets are more likely to rise or decline. An upcoming seasonal window to buy the S&P 500 may interest you, especially with the 100% track record.
It's important to note that while seasonal patterns can provide valuable insights, they should not be the sole basis for trading decisions. Traders must consider other technical and fundamental indicators, risk management strategies, and market conditions to make well-informed and balanced trading choices.
The seasonal window begins on October 26 but can often start a week or two early. Cyclical patterns never bottom or top precisely on the exact date each year. Hence, they are called seasonal windows and not seasonal dates.
Source: MRCI
The chart reveals the 15-year average of prices (blue line) for the S&P 500. Historically, the S&P 500 has traded sideways from mid-July through late October. The price bars reflect that they have been following this pattern closely. As this seasonal trade begins, the market will make new all-time highs.
One headwind that could cause an issue is the upcoming election on November 05. With no clear projected winner, the market may react negatively due to the unknown. Otherwise, the historical results of this pattern speak for themselves, and while there are no guarantees of success, there is a high probability of the pattern repeating itself.
MRCI research has found that the S&P 500 closed higher on approximately December 02 than on October 26 for 15 of the past 15 years. The following table shows hypothetical trades with a 100% track record during this period. Traders may also notice that two of the 15 years never had a daily closing drawdown.
Source: MRCI
In closing….
Investing in the stock market may seem complex, but one of the most straightforward strategies is purchasing an ETF that tracks the S&P 500, such as the SPDR S&P 500 ETF. This approach allows traders to own shares in 500 of the largest U.S. companies, spreading risk and increasing long-term growth potential. A critical insight is the seasonal window, which shows the S&P 500 ETF has risen 100% of the time over the past 15 years during a specific period. This powerful pattern gives traders confidence, knowing they can capitalize on a proven historical trend.
Although timing the market is notoriously tricky, seasonal patterns, such as the one starting in late October, offer valuable opportunities. Data from Moore Research Center, Inc. (MRCI) indicates the S&P 500 has consistently rallied during this period, making it a high-probability trade for those looking to leverage historical trends. While these patterns should not be relied on solely, when combined with other indicators and proper risk management, they can boost a trader's confidence and opportunities by aligning with a time-tested, successful strategy.
Equity traders may use the exchange-traded fund (ETF) SPY to participate in this opportunity. At the same time, futures traders could use the emini contract ES or the micro-contract ET. There are many more vehicles to trade the S&P 500, but these are among the more popular. Also, the S&P 500 is the most liquid index market to trade—allowing for safer executions of your trades.
On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
