Since 1988* this adage has been remarkably useful: it is still true over time that a November to April portfolio outperforms handsomely its May to October rival. And this is especially so for small and mid caps where summertime more frequently means capital losses.

Exhibits 1, 2 & 3: Winter compared to the previous Summer performance on the FTSE 100, S&P500 and the Russell 2000

However, it is noticeable in the US (and across its market caps) that the summer portfolio has turned the tables on the winter for the last 4 years. The historic data marks this as highly unusual; and it is not a trend visible in the UK where markets have split the last 4 years evenly between the seasons (AIM, Techmark, FTSE 250 and FTSE 100).

Exhibits 1, 2 & 3: Winter (NA) minus previous Summer (MO) performances on the FTSE 100, S&P 500 and Russell 2000

Whatever is to be made of these recent US developments (author entirely open to theories), it is often the case that momentum established over biannual/annual frequencies is worth paying attention to (even when not whole heartedly believing in it). And so is divergence between markets traditionally in lock step.

But do not expect everyone to start cutting short summer holidays worrying about it (Ed: Sarkozy or no Sarkozy).

* A starting point chosen mainly because it is the date from which foreign official assets (as measured by the Fed) began to rival those of the US on broadly equal global liquidity terms.

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  1. Charles Butler // 5/09/2007 04:29:00 PM

    Hey Rawdon,

    I like stuff that can be condensed into a rhyme. Kind of keeps your head on straight. Note that the huge difference mostly derives from the bad stuff that seems to happen during the more temperate of the two choices. But like everything to do with this, we'll have to wait five or six centuries more before there's actually enough data.

    Eye opening, BTW, if you move the six month window around and the start date between 1988 and 1987, the effect Black Monday has on the outcomes.


  2. RJH Adams // 5/09/2007 05:57:00 PM

    Playing with the data is good sport. I note that running summer before or after winter yields the same broad result though.

    Recent seasonality reversals sit on a tiny sample, true. But they are very unusual (not that this means something - I don't know).

    But the broader issue (in my minority view) with waiting for reams of data points to confirm trends is that the context of the market/economy is dynamic: eg cycles are constant, but how we ride them up and down is rarely the same. Go back to 1960 and work your way through the innards of the next 7 recessions. A "typical" downturn does not exist and pattern spotting them is frustrating work.

    Which is a roundabout way of citing the wealth warning "past performance is not necessarily a guide" etc etc. Past patterns are fine and important but assessing current conditions is at least as vital.

    Anyway, whatever happened to our Barcelona bet?


  3. Charles Butler // 5/09/2007 07:19:00 PM

    Sure. The last couple or three years are a real case in point. Bad news that might have stung in other periods is met with no more than a relative shrug. My inclination in looking at historical stuff is to toss in the garbage the entire 1997 to end of 2002 period, on the assumption that it won't be repeated whilst I'm still around. An outlier of six years duration of no more than anecdotal interest.

    Thanks to a link in CC, I think we might agree to use the IPD Spain index to decide where prices are. Two questions remain: how far do they have to tank before we decide that a bubble existed, and, by when? I can answer them, but the wager won't be settled until the coming decade. However, I'm so sure of my take that I'll give you any non-positive number by the end of 2008 if you take the other side. Further out, we'll have to refine it a bit.

    You're up.

  4. RJH Adams // 5/11/2007 11:47:00 AM

    Hey, it wasn't me who wrote that vexed reply to you about Spanish property at IBEX Salad! Maybe it's not a bubble but prices do look fairly sporty.

    I'll take a global (7)% by end 2008 on the IPD Spain Index measures.

    Once I win this meal maybe you can show me a few bargain villas...


  5. RJH Adams // 5/11/2007 12:02:00 PM

    ...or maybe you are calling shallow 2007 dip and robust 2008 recovery:

    (I'm sure you realize that we are in the trash talking phase, now)


  6. Charles Butler // 5/11/2007 02:17:00 PM

    Sporty they are. Seville approx twice Amsterdam, for example. On the other hand, I'm currently trying to weasel (I've done alot for you in the past, Felisa..) a preferred customer price out of my cousin for the olive trees she wants to trade in for a flat in the city of Semana Santa.

    OK. You're on, especially because you spotted me seven. But be forewarned - I start fasting today and I'm gonna be mighty hungry. There may not be much left for your Costa Brava dream home.

    Reuters' Marbella real-time screen was apparently malfunctioning, BTW. The body count rose to 101 the day before yesterday. Ken Thomson'll fix that.

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