Definition
The term Halloween strategy refers to the selling of stock before May and not investing in equities again until the end of October. The Halloween strategy is based on a theory that the months of November through April provide investors with stronger capital gains than the remainder of the year.
Explanation
Also referred to as the Halloween indicator, and Sell in May and Go Away, the Halloween Strategy is based on the premise the stock market provides investors with the greatest opportunity for capital appreciation in the months of November through April.
The theory is based on historical studies indicating these months provide individuals with the highest return on their investment. During the months of May through October, the Halloween strategy suggests investors should avoid holding stocks. The table below contains the 50-year performance (1966 - 2015) of the S&P 500 Index by month:
Month | S&P 500 Return |
January | 0.86% |
February | 0.04% |
March | 1.09% |
April | 1.40% |
May | 0.14% |
June | -0.01% |
July | 0.25% |
August | -0.23% |
September | -0.69% |
October | 0.84% |
November | 1.07% |
December | 1.40% |
While the theory generally holds true when looking at the returns of the S&P 500, it's interesting to note October provides investors with the sixth highest monthly returns, and significantly outpaces the month of February. The month of October is mistakenly viewed by investors as providing lower returns, since it's also associated with the stock market crash of 1929 and 1987.
Related Terms
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