Just as there are strong seasonal trends pertaining to good and bad months in which to own stocks, there are times within each month that are preferable for buying stocks. Building on monthly timing concepts, empirical evidence exists that proves stocks have historically performed better on some days of the week than others.
Simply put, the best day of the week for stocks in terms of performance is Wednesday. A study in the Journal of Economics and Finance entitled "The Day of the Week Effect on Stock Market Volatility" examined 25 years' worth of daily S&P; 500 performance data. The number of days observed in the study was nearly 6,450, including 1,289 Wednesdays. The average return on those Wednesdays was nearly 0.032 percent.
Bull or Bear Market?
While Wednesday has consistently proven to be the best day for stocks in terms of upside performance over long stretches of time, there are times when Wednesday is not always the premier day to buy stocks. For example, in strong bear markets, short sellers usually want to get involved in the market on Monday because that day of the week is historically the worst for stocks. In strong bull markets, Friday is the best day of the week for the S&P; 500 and the second-best day for the Nasdaq Composite, according to research by Thomas Bulkowski.
Flip Monday Around
Think about Monday this way: Investors are always told to buy low and sell high, so buying on the worst day of the week is a valid idea. In fact, during previous bull markets, Monday was the best day of the week to buy stocks from the S&P; 500, Dow Jones industrial average and the Nasdaq Composite. Thursday was the best day of the week to buy stocks included in the Dow Transports and the Dow Utilities indexes. Investors cannot buy from indexes directly, but there are exchange-traded funds (ETFs) available that track these indexes.
End of the Month
Stocks perform better towards the end of the month and in the early part of the following month because many U.S. workers are paid on the 30th, 31st or first. Conventional wisdom holds that this scenario boosts stocks because money managers who manage 401(k) plans and other retirement vehicles must deploy some of the new assets into stocks. In a strong bull market, buying stocks at the end of the month, regardless of what day of the week the purchases are made, can be rewarding.
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