Many investors have heard the expression "Sell in May and go away." The phrase is used to highlight the theory that May through October usually brings weakness for stocks. History has proved "Sell in May and go away" to be sound advice countless times. Conversely, buying in November and sticking around through April has also been wise, as that is usually the best six-month period in which to own stocks.
Buying retail stocks in November probably will not surprise many investors because it's often viewed as the month in which holiday shopping kicks into high gear. Black Friday, the day after Thanksgiving, has grown more important to an array of retailers over time, and when the economy is humming, buying retail stocks in November can be a profitable move. What is important to note is that November and December are the last two months of the fourth quarter, and the first quarter of the new year is often when the best returns are delivered by retail stocks. The reason is because those retailers are reporting their fourth-quarter results. By getting into retail stocks in November, investors will be well-positioned for potential upside in January and February without being at risk of chasing stocks that have already taken off.
The energy patch is another place to look for compelling November buys. With some luck in the weather forecast, investors can turn quick profits in energy stocks late in the year if temperatures are uncommonly low or certain states are expecting higher-than-average snowfall. Natural gas futures and equities have shown some correlation to weather forecasts, rising on news of expected snow and chilly temperatures and falling when temperatures rise. Additionally, oil stocks have their own seasonal tendencies, with February marking the start of a strong four-month period in which to own oil producers. As is the case with retail names, investors can start positions in oil stocks in November and not have to worry about chasing performance a few months later.
Cash In With Chips
At first glance, computer and semiconductor makers may not appear to be the type of stocks prone to seasonal trends. After all, folks use products with semiconductors inside no matter month it is. When these products break, they need to be replaced, often immediately and regardless of the season. Still, there are strong seasonal trends with semiconductor stocks, including late October as a good time to buy. Investors can wait into November for confirmation that the historical precedent is being repeated.
This is another "get a leg up" idea. The market theory known as the "January Effect" says that if stocks are going to have a strong year, clues will be given in the leadership of small-caps in January. Some traders believe the January Effect actually starts before Christmas, so aggressive investors may want to evaluate small-caps in the back half of November in preparation for the January Effect.
Todd Shriber is a financial writer who started covering financial markets in 2000. He worked for three years with Bloomberg News and specializes in analysis of stocks, sectors and exchange-traded funds. Shriber has a Bachelor of Science in broadcast journalism from Texas Christian University.